By Sanjeev Ahluwalia
The oil shock poses two risks for India. First, the fear that it will increase the current account deficit. Second, it poses a conundrum of navigating conflicting objectives — preserve the market-based retail oil price mechanism whilst graduating the price shock for consumers and containing inflation. The latest oil shock — an increase from $69 last year to $80 per barrel this week — is courtesy the American President, Donald Trump, who unilaterally pulled the United States out of the 2015 deal that Iran had reached with the UN’s Permanent Five (US, UK, Russia, France, China) plus Germany. This spooked the global financial markets, which justifiably fear renewed trade sanctions on Iran, ending five per cent of world production. The nuclear deal had ended sanctions and boosted world supply. Prices declined from $84.2 in 2014-15 to $46.2 in 2015-16. New sanctions may reverse the trend.