India faces the prospect of a higher oil import bill and renewed inflationary pressure after international crude prices surged on Tuesday, with Brent approaching USD 100 a barrel as escalating West Asia tensions raised concerns about disruptions to global supplies.
Brent futures rose more than 2 per cent to around USD 99 a barrel, while US West Texas Intermediate crude gained almost 3 per cent to about USD 94. The latest development followed attacks on Saudi energy infrastructure and heightened tensions involving Iran and the US, raising concerns about further disruption to oil flows.
India, the world's third-largest oil importing and consuming country, is particularly exposed to swings in international crude prices. It imports over 88 per cent of its crude - raw material for making fuels like petrol and diesel - requirements.
A sustained increase in prices raises the country's dollar-denominated import bill and can put pressure on the trade balance and the rupee, analysts said.
Higher crude prices can also feed into domestic inflation through fuel, transport and other energy-related costs, they said, adding that impact on consumers and the wider economy depends in part on how much of the increase is passed through to domestic fuel prices and how long international prices remain elevated.
For now, retail petrol and diesel prices remain on freeze for over three months. Rates were last revised on May 25 when they were hiked by Rs 2.61 a litre for petrol and Rs 2.71 per litre for diesel. Those hikes were part of the revision in rates that happened in the second half of May in response to international prices rising due to the war in West Asia disrupting energy flows from the Gulf countries. In all, petrol price was raised by Rs 7.35 a litre and diesel by Rs 7.53 in four instalments.
The increase in crude oil prices will put margin pressure on fuel retailers Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), who have already been struggling with accumulated losses for not being able to pass on the entire impact of the rise in oil prices in the aftermath of the West Asia crisis.
India's crude oil import bill surged by over 56 per cent during April-July to USD 63.4 billion compared to USD 40.5 billion in the same period last year, according to the Oil Ministry's Petroleum Planning and Analysis Cell (PPAC).
The volumes bought remained almost the same - 81.9 million tonnes in the first five months of the current fiscal and 81.5 million tonnes last year.
The basket of crude oil India imports averaged USD 106.26 per barrel on Monday, according to PPAC.
The basket is made up of sweet or low-sulphur (Brent) and sour grades containing more than 0.5 per cent sulphur (Oman & Dubai average) in the ratio 77.81:22.19.
The Indian basket of crude oil breached the USD 100 mark, and the September average is USD 100.75 per barrel against USD 90.19 in August and USD 82.04 in July.Prashant Vasisht, senior vice president and co-group head, Corporate Ratings, Icra Ltd, said, "The renewed hostilities between Iran and the US pose a challenge for the limited crude oil supplies coming through the Strait of Hormuz. Further, as Iran threatens to establish a new restricted maritime zone extending beyond the Strait of Hormuz, additional energy flows beyond the latter could be at risk".
Owing to these developments, crude oil prices have increased in the past few days, and the Indian crude basket has crossed the USD 100/barrel mark, he said, "As a result of the surge in crude prices, marketing margins on auto fuels are likely to turn negative and domestic LPG under-recoveries could increase from the current Rs 200 per cylinder".
The disruption comes as traffic through the Strait of Hormuz (SoH), a key route for global energy shipments, has slowed sharply. The waterway normally carries about one-fifth of the world's daily oil and liquefied natural gas supplies. West Asian oil shipments have fallen to about 11 million barrels a day from roughly 18 million barrels a day amid the conflict.
For India, the effect of higher crude prices extends beyond the import bill. Refiners, fuel distributors, airlines, petrochemical companies and other energy-intensive industries can face higher costs when crude prices rise.
According to Wood Mackenzie, the SoH disruption has significantly changed Asia's oil demand trajectory. Asia Pacific oil demand is not expected to return to pre-conflict levels until late 2027, after a projected 1.24 million barrels per day decline in 2026.
Petrochemical feedstocks, especially LPG and naphtha in markets reliant on SoH transit flows, have been most affected, while road fuels have remained more resilient.
"India is leading the regional recovery, surpassing pre-conflict demand levels first, with Southeast Asia following. China's oil demand likely peaked before the conflict began," it said.
Wood Mackenzie said extending the West Asia conflict to year-end cuts global crude runs by an estimated 1.4 million barrels per day (bpd) in Q4 2026, led by Asia.For India, a brief spike in crude prices would have a more limited impact than a prolonged period of elevated prices, which could put greater pressure on inflation, the current account and the currency. (Agencies)
