Kolkata: Whenever there is rising geopolitical tension in West Asia, New Delhi’s worries mount. And for good reason. India, which is the world’s fastest growing big economy, is not only hungry for energy but also` critically dependent on import of crude oil. If any conflict leads to a rise in crude oil prices in the global market, it has severe repercussions for India’s forex reserves but also for price rise in general. Crude oil is the biggest item on the country’s import bill.
The price of crude oil in the global market has started to rise alarmingly. On Friday, as the news of Israel launching missiles on sites in Iran spread, crude oil prices surged by more than 13%. Brent crude, the global benchmark of oil rose 12.82% to reach $78.25 a barrel, while the US West Texas Intermediate (WTI) crude futures zoomed 13.48% to touch $77.21. The key concern for the rise: the escalating conflict can disrupt crude oil supplies.
Implication for India
Let’s see the implications for India. India’s crude import bill rose by 2.7% in FY25 and reached $137.0 billion in contrast to $133.4 billion in FY24. India had to resort to imports of 234.3 million tonnes of crude oil between April and March, marking a 3.4% increase from 242.4 million tonnes last year. What’s more significant, data from Petroleum Planning & Analysis Cell state that in April India imported as much as 90% of its requirement of crude oil. Usually, the country has to import about 85% of its crude oil requirements. In 2023, India had to import 88.6% and in 2024 88.% of the crude oil requirements.
Rising crude prices can upset inflation
India is currently passing through sweet spot as far as retail inflation is concerned. In May retail inflation dropped to 2.82% which is the lowest level in more than six years. It was mainly achieved due to food inflation dropping 0.99% during the month. Food items have a nearly 48% weightage in the retail inflation basket. “The significant decline in headline inflation and food inflation during the month of May 2025 is mainly attributed to a decline in inflation of pulses & products, vegetables, fruits, cereals & products, households goods & services, sugar & confectionary and egg and the favourable base effect,” NSO said in a statement. The food inflation in May 2025 is the lowest since October 2021.
Rising crude prices can not only lead to a rise in the retail prices of petrol, diesel and jet fuel but also trigger an all-round price rise due to rise in overall transport costs. That can upset the Reserve Bank of India’s (and finance ministry’s) grand design to trigger economic growth in the country by pulling down the interest rates.
Low inflation, low interest rate, higher consumption sweet spot
On June 6, RBI took the step of a jumbo rate cut of 50 basis points to bring down the interest cost all around the country. It also proposed to cut the CRR (cash reserve ratio) from 4% to 3% later in the year to inject massive liquidity in the economy. If the conflict persists and surging crude oil prices raise inflationary pressures, the central bank could be compelled to have a relook at the grand design.
Low interest rates and liquidity pave the way for the triggers for the government and RBI to stoke higher consumption, which is the primary driver of Indian GDP. If consumption rises and GDP expands, it could also trigger a rise in employment opportunities. The bedrock of all this is low inflation.
Therefore, all eyes of the economic policymakers will be set on how the Israel-Iran conflict unfolds. If the missiles continue to fly, strikes and counter strikes intensify, crude oil supplies from Iran can be disrupted. Though India did not buy much oil from Iran recently due to US sanctions, Iran is the third largest crude oil producer in the OPEC.
Other concern, the rupee
There can be other concerns too. Surging crude prices can weaken the rupee against to US dollar. On Friday morning the rupee depreciated sharply by 56 paise against the greenback. A weak rupee, in turn, can lead to FIIs diluting their positions in the Indian sotck market, which will dampen the sentiments in the equity markets, which, in turn, will ffurther weaken the Indian currency.
India, an energy-hungry growing economy, is critically dependent on the import of crude oil. It is also the biggest item in the country’s import bill. It could easily upset a lot of macroeconomic calculations including the retail inflation footprint. Economy Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
