India third on oil vulnerability index
India with average oil vulnerability index of 0.93 ranks third in the world. The country must reduce its oil intensity and amount of imports to manage risks,
By TNN |
By Eshita Gupta
India has emerged as the world���s third most oil vulnerable country in a study done at The Energy and Resources Institute (TERI), which ranked 26 major net oil-importing countries in terms of their oil vulnerability.
The composite oil vulnerability index (OVI) of selected countries was derived for the year 2004 on the basis of four market risk indicators ��� (i) the ratio of value of oil imports to gross domestic product (VOM/GDP), (ii) oil intensity or oil consumption per unit of GDP (OI), (iii) GDP per capita (GDP/POP), and (vi) oil share in total energy supply (OS) ��� and three supply risk indicators ��� (i) ratio of domestic reserves to oil consumption (DR/DC), (ii) exposure to geopolitical oil market concentration risks (GOMCR), and (iii) market liquidity or ratio of world oil imports to domestic oil imports (ML).
The average OVI for the selected 26 countries is 0.64. The average OVI of the seven Asian economies, at 0.71, is somewhat higher than the European (0.63). However, for the three Asian economies ��� the Philippines, Korea, and India ��� the average OVI of 1 is significantly higher than the all-country and the Asian average. India with average OVI of 0.93 ranks the 3rd most vulnerable, whereas China with OVI of 0.66 performs much better at 11th position. Australia, Sweden, the US and Germany emerge as the four least vulnerable oil importing countries.
The important question to ask is then ��� what are the factors, which make India more vulnerable compared to the 23 of selected 26 countries?
In 2004, of all the selected 26 countries, India has the lowest GDP per capita (paying capacity) of 538 ($2000) and the highest oil intensity of 0.22 tonnes of oil per unit of GDP. Its ratio of oil imports to GDP at 4.21% is almost double that of China and fourth highest among all selected countries. The analysis highlights that these three market risk indicators, namely, oil intensity, ratio of value of oil imports to GDP and GDP per capita, each with a share of over 22% in the OVI, contributes significantly to India���s oil vulnerability. On the positive side, it is observed that India���s oil share in primary energy at 22.23% is fourth lowest among all the 26 countries, although it is slightly higher than that of China (with 19.35%).
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Interestingly, India performs reasonably well with respect to most supply risk indicators. India has the third highest ratio of domestic oil reserves to oil consumption ratio (six years) after Australia (10.93 years) and China (7.81 years). With respect to ML, we see that India with oil imports accounting about 2.8 % of world���s imports (equivalent to the ML of 35.36) scores ahead of US (with ML of 5.17), China (21.04), Japan (12.44), Korea (30.04) and Germany (26.16). This implies its relatively greater ability to switch between suppliers in an event of an oil supply disruption compared to these countries. Its geopolitical oil market concentration risk (GOMCR) measure at 0.54 is relatively lower compared to most European countries (with average GOMCR of 0.72), Japan (1.42), Korea (0.98) and Philippines (1.32). However, when compared with countries such as China (0.08), US (0.20), Australia (0.06) and Germany (0.36) its GOMCR measure is extremely high. The GOMCR measure combines three factors, namely, net oil import dependence, diversification of supply sources and political risk in oil supplying countries. Although, India���s oil import dependence (69.3%) is higher than that of US (64%) and China (47.7%), it is fairly less compared to the Philippines (99%), Japan (99.2%) and most European countries with over 90% dependence. Further, the Philippines, Korea and Japan are relatively more dependent on politically difficult countries compared to India. This is reflected by their higher dependence on OPEC countries and the higher average political risk factor of supplying countries.
On the other hand, the European countries and the US due to their geographical advantage are able to import more competitively (as compared to most Asian oil-importing countries) from countries other than OPEC members such as Canada, UK, Norway, and FSU (which are perceived as relatively politically more stable countries).
On an overall basis, it appears that India���s relatively higher market risk more than neutralises its relatively lower supply risk, resulting in an overall high oil vulnerability index. This highlights that the greater priority in managing risks for India lie in reducing its market risks, i.e., through reducing its oil intensity and amount of oil imports.
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(The author is with TERI)Download
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