India Faces Rising Oil Import Costs Amid Global Tensions: What It Means for Consumers

Surging Crude Prices Raise Concerns

New Delhi: India is bracing for an increased oil import expenditure and potential inflationary pressures as international crude prices soared on Tuesday, with Brent nearing USD 100 per barrel due to escalating tensions in West Asia, raising fears of supply disruptions.

Brent futures climbed over 2% to approximately USD 99 per barrel, while US West Texas Intermediate crude surged nearly 3% to around USD 94. This spike follows attacks on Saudi energy facilities and rising tensions between Iran and the US, which have heightened concerns about oil supply stability.

As the third-largest oil importer and consumer globally, India is particularly vulnerable to fluctuations in international crude prices, importing over 88% of its crude oil, which is essential for producing fuels like petrol and diesel.

Analysts warn that a sustained rise in crude prices will inflate the country's dollar-denominated import bill, potentially impacting the trade balance and the value of the rupee.

Moreover, higher crude prices could contribute to domestic inflation through increased costs in fuel, transportation, and other energy-related sectors. The extent of the impact on consumers and the broader economy will depend on how much of the price increase is reflected in domestic fuel prices and the duration of elevated international prices.

Currently, retail prices for petrol and diesel have remained unchanged for over three months. The last adjustment occurred on May 25, when petrol prices increased by Rs 2.61 per litre and diesel by Rs 2.71 per litre. These adjustments were part of a series of increases in late May, prompted by rising international prices due to the conflict in West Asia affecting energy supplies from Gulf nations. Overall, petrol prices have risen by Rs 7.35 per litre and diesel by Rs 7.53 across four increments.

The rise in crude oil prices is likely to exert pressure on the profit margins of fuel retailers such as Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL), which have been grappling with losses due to their inability to fully pass on the increased costs stemming from the West Asia crisis.

India's crude oil import bill surged by over 56% from April to July, reaching USD 63.4 billion compared to USD 40.5 billion during the same period last year, as reported by the Oil Ministry's Petroleum Planning and Analysis Cell (PPAC).

The volume of crude oil purchased remained relatively stable, with 81.9 million tonnes imported in the first five months of the current fiscal year, compared to 81.5 million tonnes last year.

On Monday, the average price of the crude oil basket imported by India was USD 106.26 per barrel, which includes both sweet (Brent) and sour grades, with a ratio of 77.81:22.19.

The Indian crude oil basket has surpassed the USD 100 mark, with the September average at USD 100.75 per barrel, compared to USD 90.19 in August and USD 82.04 in July.

Prashant Vasisht, senior vice president and co-group head at Corporate Ratings, Icra Ltd, noted that renewed tensions between Iran and the US pose challenges for limited crude oil supplies through the Strait of Hormuz. Iran's threats to establish a new restricted maritime zone could further jeopardize energy flows.

Due to these developments, crude oil prices have risen sharply in recent days, pushing the Indian crude basket above USD 100 per barrel. Vasisht added that the surge in crude prices could lead to negative marketing margins on auto fuels and increase domestic LPG under-recoveries from the current Rs 200 per cylinder.

This disruption coincides with a significant slowdown in traffic through the Strait of Hormuz, a crucial route for global energy shipments, which typically carries about one-fifth of the world's daily oil and liquefied natural gas supplies. West Asian oil shipments have dropped to approximately 11 million barrels per day from around 18 million barrels per day amid ongoing conflict.

For India, the implications of rising crude prices extend beyond just the import bill. Refiners, fuel distributors, airlines, petrochemical firms, and other energy-intensive sectors may face increased costs as crude prices rise.

According to Wood Mackenzie, disruptions in the Strait of Hormuz have notably altered Asia's oil demand trajectory, with a return to pre-conflict levels not expected until late 2027, following a projected decline of 1.24 million barrels per day in 2026.

Petrochemical feedstocks, particularly LPG and naphtha in markets dependent on Strait of Hormuz transit flows, have been most affected, while road fuels have shown more resilience.

Wood Mackenzie also indicated that India is leading the regional recovery, surpassing pre-conflict demand levels first, with Southeast Asia following. In contrast, China's oil demand likely peaked before the conflict began.

The firm warned that if the West Asia conflict extends into the year-end, global crude runs could be reduced by an estimated 1.4 million barrels per day in Q4 2026, primarily affecting Asia.

For India, a temporary spike in crude prices may have a limited impact, but a prolonged period of high prices could exert significant pressure on inflation, the current account, and the currency.