Crude Oil Surge Puts India’s Import Bill Under Pressure, West Asia Supply Risks Fuel Fresh Concerns

New Delhi: India could face a bigger oil import bill and fresh inflation pressure as international crude prices climb sharply amid escalating tensions in West Asia and concerns over energy supplies through the Strait of Hormuz.

Brent crude jumped more than 2% to around $99 a barrel on Tuesday, while US West Texas Intermediate (WTI) gained nearly 3% to about $94.

India’s Crude Import Bill Jumps 56%

India is particularly vulnerable to rising crude prices as it imports more than 88% of its crude oil requirements.

According to Petroleum Planning and Analysis Cell (PPAC) data, India's crude oil import bill surged over 56% to $63.4 billion during April-July, compared with $40.5 billion a year earlier, despite import volumes remaining broadly unchanged.

The Indian crude basket crossed $100 a barrel, averaging $100.75 in September, against $90.19 in August and $82.04 in July.

A prolonged rise in crude prices could increase India's dollar demand, pressure the rupee and trade balance, and push up inflation through higher transport and energy costs.

Oil Companies Face Margin Pressure

Higher crude prices could also squeeze marketing margins at Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation.

Retail petrol and diesel prices have remained unchanged for more than three months after being raised by a cumulative Rs 7.35 and Rs 7.53 per litre, respectively, in May.

ICRA's Prashant Vasisht said rising crude prices could turn auto-fuel marketing margins negative and increase domestic LPG under-recoveries from around Rs 200 per cylinder.

Strait of Hormuz Disruption Raises Risk

The Strait of Hormuz, which normally carries about one-fifth of global oil and LNG supplies, has seen traffic slow sharply. West Asian oil shipments have reportedly fallen to around 11 million barrels per day from roughly 18 million.

For India, a prolonged crude oil spike could raise costs for refiners, airlines, petrochemical companies and other energy-intensive industries while increasing pressure on inflation, the current account and the rupee.