 "oil trade, Russia, Crude Oil, Vladimir Putin, US sanctions")
A sharp rise in global crude oil prices, triggered by intensifying conflict between Israel and Iran, is likely to put pressure on India’s current account deficit (CAD) and the rupee, economists have said. But the growth-inflation dynamics are unlikely to be impacted significantly, if petroleum prices remain rangebound.
India, which imports more than 85 per cent of its crude oil requirements, remains highly sensitive to global energy-market fluctuations. Brent crude has jumped from $60-61 per barrel in May to about $75 per barrel, while the Indian basket rose to $73.1 as on June 13 from $64 last month, according to data from the Ministry of Petroleum.
The macroeconomic impact depends on whether oil prices remain elevated, said Sakshi Gupta, principal economist, HDFC Bank. “If oil prices rise and sustain above $80 per barrel, this could lead to an upward revision to our CAD forecast for FY26 by 30-40 basis points.”
One basis point is a hundredth of a percentage point.
Icra Ratings Chief Economist Adit Nayar echoed the view, stating that an average crude oil price of $75 per barrel could widen the CAD to 1.3 per cent of gross domestic product (GDP), from the earlier baseline projection of 1.1 per cent. Gaura Sengupta, chief economist at IDFC First Bank, projected a CAD of 1.7 per cent under similar conditions, versus her base case of 1.5 per cent.
Earlier, Nayar had factored in an average oil price of $65-70 per barrel for FY26, lower than the last year’s average level of $78.6 per barrel.
Although India stopped importing oil from Iran in 2020, it now sources 35-40 per cent of its crude oil from Russia, up from near zero before 2022. Despite this diversification, India remains exposed to geopolitical risks. Almost two-thirds of its crude oil and half its LNG imports still pass through the Strait of Hormuz — now under threat of closure by Iran.
Sujan Hajra, chief economist at Anand Rathi, said even if there was a 25 per cent jump in average crude oil prices — from $65 per barrel to $81 per barrel — for a six-month period, there would be a 30-basis-point increase in India’s CAD as percentage of GDP.
Bank of Baroda Chief Economist Madan Sabnavis agreed, and said the immediate impact would be on India’s trade maths amid pressure on the Indian rupee and CAD. He expects retail inflation to remain largely insulated.
“It will not impact inflation as petrol and diesel prices under CPI (consumer price index) are largely controlled by the government. The informal deal seems to be: If crude price goes up, retail (pump) prices won’t rise; if it goes down, (pump) prices won’t fall. But WPI (wholesale price index) may show some impact,” he explained.
Even if crude oil prices stay at the current levels, Nayar said, this might not trigger a material revision in her FY26 GDP growth forecast, which she currently pegs at 6.2 per cent, lower than the monetary policy committee’s projection of 6.5 per cent. “However, a sustained increase from the current level would weigh on India Inc’s profitability and the extended uncertainty may further delay private capex, resulting in a downward revision in our GDP growth projections for the second half of this financial year,” she cautioned.
Sabnavis, however, argued that static petrol and diesel prices would shield consumer spending, limiting the downside risk to GDP growth. “Even if FMCG (fast-moving consumer goods) firms pass on higher input costs, their weight in the CPI basket is relatively small,” he noted.
Hajra forecast a 20-basis-point dip in real GDP growth and a 70-basis-point rise in retail inflation if crude remained at $81 per barrel for six months. “The nominal GDP growth is likely to increase by 50 basis points,” he added.
QuantEco Research said India’s direct trade exposure to Israel and Iran was limited, reducing the risk of any direct fallout. “On the indirect front, as long as the price of Brent stays under $80 per barrel on average basis in FY26, there should be no adverse macrofinancial spillover impact on India,” it added.
