5 hrs ago
India’s Crude Basket Nears $130, Reviving Fiscal and Inflation Worries
India buys a lot of oil from other countries.
Oil prices have climbed quickly, with India’s oil basket reaching almost $130 per barrel on September 14.
This could make India spend much more money on imports.
It could also make fuel and other goods more expensive for people.
The government may need to spend more on fertiliser subsidies.
State-run fuel companies could lose money if pump prices do not rise enough to match their costs.
Attacks and a closed Saudi pipeline have made oil shipments more difficult and expensive.
India has enough fuel reserves for about 74 days, so the immediate problem is mainly higher costs rather than a shortage.
Analysts warn that prices staying high for several months could slow economic growth and widen India’s current account deficit.
India’s crude basket rose nearly 30% from $99.35 a barrel on September 2 to $128.70 on September 14.
Higher crude prices could increase India’s import bill, widen the current account deficit and push inflation higher.
The government’s fertiliser subsidy estimate may need another upward revision from the current Rs 2.2-2.3 lakh crore.
Oil marketing companies are facing negative fuel marketing margins, with total under-recoveries already around Rs 61,900 crore at the end of the June quarter.
Hostilities near the Strait of Hormuz, the Saudi East-West Pipeline closure and higher shipping costs are raising supply and landed-cost risks for Indian refiners.
- Who
- India, its government, oil marketing companies and Indian refiners are affected; analysts from ICRA, Kpler and other sector observers provided assessments.
- What
- India’s crude basket has surged toward $130 a barrel, increasing risks to import costs, inflation, fiscal spending, oil-company margins and economic growth.
- Where
- The impact is centered on India, while supply disruptions involve the Strait of Hormuz, Saudi Arabia’s East-West Pipeline and crude shipping routes to West India.
- When
- The basket rose from September 2 to September 14; the September average reached $109.76 a barrel. Global crude prices were reported on Tuesday, while the cited economic projections cover two to three quarters or six months.
- Why
- Renewed attacks around the Strait of Hormuz, the closure of Saudi Arabia’s East-West Pipeline, higher freight costs and elevated international crude prices have increased the cost and risk of importing oil.
Key facts
- Crude basket on September 14
- $128.70 a barrel, up from $99.35 on September 2
- September average
- $109.76 a barrel, compared with $90.19 in August
- Fuel reserves
- India has around 74 days of total fuel reserves
- Fertiliser subsidy estimate
- Currently estimated at Rs 2.2-2.3 lakh crore, versus a budget estimate of Rs 1.77 lakh crore
- Oil company under-recoveries
- Around Rs 61,900 crore at the end of the June quarter
- Potential economic impact
- Crude at $130 a barrel for two to three quarters was projected to reduce FY27 growth to 6.4%, raise inflation to 5.5% and widen the current account deficit to around 3.2% of GDP
- Shipping cost
- Freight from Russia’s Novorossiysk port to West India reached $23.20 a barrel in the week to September 6
Quotes
An analyst tracking the sector
An unnamed analyst tracking India’s oil and macroeconomic conditions
“India can absorb crude above $110 a barrel, but at a rising economic cost. Every $10 increase in crude could widen the current account deficit by 0.35-0.5 percentage point of GDP, add 20-25 basis points to inflation and shave 15-20 basis points off GDP growth.”
financialexpress.com
“The bigger risk for India is not only physical availability of crude, but the rising landed cost. Higher crude prices, freight, insurance and longer voyages all increase the delivered cost of barrels.”
financialexpress.com
Sources
Related news
Oil Tops $100, Threatening India’s Import Bill and Finances
India’s Crude Basket Tops $100 as Geopolitical Risks Persist
Crude Surge Threatens India’s Import Bill and Inflation
India’s Oil Surge Manageable Now, but Risks Rise
Brent Crude Tops $95, Raising India’s Oil Import Concerns
US Says It Destroyed Iranian Boats Over Drone Attempt
Houthi Chokepoint Seizure Exposes Deep Divisions Inside BRICS
US 10-Year Treasury Yield Hits Highest Level Since 2007
Asian Buyers Dump LNG as Conflict Disrupts Middle Eastern Supplies
