India faces a potentially heavier oil import bill and renewed inflationary pressure as international crude prices surged on Tuesday, with Brent approaching the USD 100-a-barrel mark amid escalating tensions in West Asia and growing concerns over disruptions to global energy supplies. Brent futures climbed more than 2 per cent to around USD 99 a barrel, while US West Texas Intermediate crude rose nearly 3 per cent to about USD 94 following attacks on Saudi energy infrastructure and heightened Iran-US tensions.
The surge leaves India particularly vulnerable as the world's third-largest oil importer and consumer depends on overseas supplies for more than 88 per cent of its crude requirement. A sustained rise in prices would increase the country's dollar-denominated import bill, potentially widen the trade deficit and put pressure on the rupee, while higher fuel, freight and energy costs could feed into inflation. India's crude oil import bill has already jumped more than 56 per cent to USD 63.4 billion during April-July from USD 40.5 billion a year earlier, even as import volumes remained broadly unchanged at 81.9 million tonnes against 81.5 million tonnes.
Indian crude basket tops $100
The basket of crude oil imported by India averaged USD 106.26 a barrel on Monday, according to the Petroleum Planning and Analysis Cell. Its September average has risen to USD 100.75 a barrel, compared with USD 90.19 in August and USD 82.04 in July. The sharp escalation also threatens to squeeze state-owned fuel retailers Indian Oil Corporation, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd, which have already accumulated losses after being unable to fully pass on the impact of higher international prices. Petrol and diesel prices have remained unchanged for more than three months after the last revision on May 25. Across four increases in the second half of May, petrol became Rs 7.35 a litre costlier and diesel Rs 7.53.
Icra senior vice-president and co-group head for Corporate Ratings Prashant Vasisht said renewed Iran-US hostilities posed a challenge to already constrained crude supplies moving through the Strait of Hormuz, while Iran's threat to establish a new restricted maritime zone could put additional energy flows at risk. With the Indian crude basket crossing USD 100 a barrel, he said marketing margins on auto fuels were likely to turn negative and domestic LPG under-recoveries could rise from the current Rs 200 per cylinder.
Hormuz disruption deepens supply fears
Traffic through the Strait of Hormuz, which normally carries around one-fifth of global daily oil and liquefied natural gas supplies, has slowed sharply. West Asian oil shipments have fallen to about 11 million barrels per day from roughly 18 million barrels per day amid the conflict, magnifying concerns over the availability and cost of supplies.
Wood Mackenzie estimates that the disruption has significantly altered Asia's oil-demand trajectory, with Asia-Pacific demand not expected to return to pre-conflict levels until late 2027 after a projected decline of 1.24 million barrels per day in 2026. If the West Asia conflict continues through the end of the year, it estimates global crude runs could fall by about 1.4 million barrels per day in the fourth quarter, led by Asia. India is nevertheless expected to lead the regional demand recovery.
The economic impact for India will ultimately depend on how long crude remains elevated and how much of the increase is passed on to consumers. While a short-lived price spike could be absorbed more easily, a prolonged period near or above USD 100 a barrel would increase pressure on inflation, the current account, the rupee and margins across refining, aviation, petrochemicals and other energy-intensive industries.