By Anil Devli
In 1980, Iran went to war with Iraq. The Iran-Iraq War which lasted from 1980 to 1988, disrupted shipping in the Persian Gulf, and making it particularly difficult and dangerous for oil tankers to operate in the region. However, it was during this time that India became one of Iran’s largest oil customers. In 1980, India imported only 6.9% of its crude oil from Iran. By 1989, this figure had risen to 13.1%. This was possible, largely thanks to Indian ships which played a key role in keeping India’s economy running during the war. Without these ships, India would have faced a severe energy crisis.
As per the IEA, thanks to urbanisation and development, India’s energy demand is expected to grow by around 35% between 2019 and 2030. If India has to become a manufacturing hub for the world, it is important to have a steady and reliable energy in the nation. In the year 2021-22, Indian oil PSUs imported about 100.16 million tonnes of crude oil and India’s private sector oil companies imported 112.22 MMT of crude oil from various countries worldwide. In the year, 17.04 MMT of LPG was also imported.
Then, and even now, a substantial portion of India’s crude oil and LPG needs are met through maritime transportation. While there are several sources of crude oil and LPG, such sources are of little use if one is unable to ensure that there are no hindrances in receipt of all of these cargoes into India. It therefore become critical that India has access and control over reliable and secure supply chains. This sense of control can only be achieved through a merchant fleet owned by Indian companies and in India.
As per RTI data, Indian oil PSUs paid a whopping Rs. 3960.70 as freight for importing approximately 80% of their imports , in 2021-2022. Clearly, thanks to the cargo being carried on non-Indian owned and controlled vessels, the entire freight went out of India! This is an unnerving situation where a majority of our energy source is dependent on foreigners. Additionally, we pay them these huge freights which only serves to bolster their fleet and services their economies.
Given the tough geopolitical times that we currently live in, any face-off with our neighbors would put critical Indian imports in a jeopardy. Even if a foreign flag was persuaded to carry Indian crude oil, it would be at stratospheric freight rates. This endangers India’s commercial security. The situation is alarming with 94.6% of India’s EXIM cargoes being carried by foreign shipping companies in 2021-22 at a guesstimated freight cost of more than USD 56 billion per year. This is just not about the annual forex outgo for but it also means that the control of shipping or transporting India’s critical commodities lies with foreign shipping companies which are owned and controlled by maybe adversarial interests.
Recognising the need to protect its supply chains, China has put in place a massive programme to grow Chinese flag fleet and last month China achieved the position as the largest ship owning country in the world.
The process of building and adding to national fleet is a costly and cumbersome affair for all but even more so in India given the high cost of funds and the fact that foreign shipping companies have unfettered access to Indian coastal and EXIM cargoes.
Further, India’s current shipping fleet is aging and in need of urgent replacement, the pace of which has been further exacerbated by global shipping’s green targets as set by the International Maritime Organisation (IMO).
As there is clear visibility to the fact that Indian fleet needs to be replaced and augmented, this is the time to promote investment in Indian ships under the Indian flag. There is a need to ensure an increase of Indian cargo on Indian bottoms. While there are several ways to do this, one method is to promote carriage of Indian cargo on Indian ships thereby entering a circular cycle – where the freight being paid by Indian oil PSUs to Indian shipping companies would ensure sustained cash flows to the lending Indian banks, who therefore would be willing to fund such additional acquisitions. Such owned and controlled merchant fleet will provide India stable transportation of its energy needs at reasonable costs; something which is absolutely essential for India’s commercial security, growth and sustenance.
A study carried out by INSA shows that one Very Large Crude Carrier (VLCC)contributes approximately Rs. 87 crore per year to the Indian economy.
A steady and sustained programme is a must so that in the next 5 years, India doubles the carriage of Indian energy cargo on Indian ships thereby ensuring complete security and reliability of its growth as an economic power on the world stage.
The Global Maritime India Summit 2023, to be held in Mumbai from October 17 to 19, is an opportune time for such policy discussions since it promises to be a transformative event. The mega event promises to be a crucial platform for government-to-government meetings, fostering collaboration and policy alignment to streamline regulations and boost infrastructure development. Additionally, policy discussions on sustainable practices will chart a course towards eco-friendly navigation and this will serve to be a showcase for maritime innovation, highlighting cutting-edge technologies and practices that can enhance the efficiency and safety of transportation of cargo by sea and elevate the nation’s potential of a brighter and more prosperous maritime future.
It is important to remember that historically countries which have ruled the seas have ruled the world.
Anil Devli,
The views expressed in this article are solely those of the writer and do not necessarily reflect those of the INSA.
