Crude oil prices touched nearly $120 a barrel on Monday as the Iran war disrupted key shipping routes. With India importing nearly 90% of the crude oil it consumes, even a modest increase in prices can translate into billions of dollars in additional costs for the economy, writes Saurav Anand
Why crude oil prices matter so much for India
India’s dependence on imported oil is the central reason why crude price movements matter so much for the economy. Nearly 90% of the country’s crude oil requirement is met through imports. According to official data, India imported crude oil worth about $161 billion in the last fiscal.
At the same time, energy demand continues to grow alongside economic expansion. Total petroleum product consumption is projected to increase by 4.65% to reach a record 252.9 million metric tonnes in FY26. This rising demand, combined with high import dependence, means global oil price movements have a direct bearing on India’s economic stability.
How a surge in prices affects India’s import bill
The most immediate impact is seen in the import bill. Estimates suggest that every $1 increase in crude oil prices raises India’s annual oil import bill by roughly 13,000 crore. In dollar terms, analysts estimate that a $1 rise in crude prices increases India’s annual import bill by about $1.5–2 billion, depending on import volumes.
This means that a $10 rise in crude oil prices can increase India’s annual import bill by more than1.3 lakh crore. For an economy that already spends billions of dollars on energy imports each year, this can significantly increase pressure on external finances.
Impact on India’s current account deficit
Higher oil prices directly affect India’s current account deficit (CAD), which is the difference between a country’s imports and exports. As per the RBI, India’s CAD rose to $13.2 billion (1.3% of GDP) in the third quarter of FY26, from $11.3 billion (1.1% of GDP) in the year-ago period.
Experts say every $10 increase in the average price of crude oil for the year (vis-à-vis the baseline estimate) would push up the CAD in the range of 30-40 bps; so for instance, an average price of $100-105/bbl would imply a CAD of ~1.9-2.2% of GDP.
Will pump prices go up?
Not immediately. Retail fuel prices depend on several factors including taxes, refining margins and pricing decisions by oil marketing companies (OMC). Pump prices for petrol and diesel have remained unchanged since April 2022. During this period, Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation absorbed losses when crude prices were high and benefited when prices declined.
However, if crude prices remain elevated for a prolonged period, fuel retailers may eventually pass on part of the hike to consumers. Every $1 rise in crude cuts the integrated margin by about `0.58/litre, assuming retail prices, refining cracks and exchange rate stay unchanged. So OMCs would start slipping into losses once benchmark oil moves above $92-94 per barrel, under the same assumptions.
Potential effect on inflation
As fuel prices rise, transport costs go up. Businesses often pass on the higher costs to consumers, pushing up the prices of goods and services. A $10 hike in crude prices could raise inflation by 20–30 basis points, based on how much of the price hike is passed on through retail selling prices (RSP) of fuel.
For every 10% hike in crude oil prices, the WPI inflation rises by 80-100 bps, against the 40-60 bps uptick in the CPI inflation assuming that a full transmission into RSP of fuel takes place. If the government absorbs part of the price hike by cutting taxes or increasing subsidies, the impact may be moderate.
Which sectors are most affected by a price surge?
Every time global crude oil prices surge, the impact is felt far beyond the oil markets. An oil price spike affects several sectors of the economy. Transport and logistics companies face higher diesel costs, raising freight rates. Airlines see operating costs increase because jet fuel accounts for a major share of expenses.
Petrochemicals and fertiliser industries depend on crude derivatives as feedstock, making them sensitive to oil price movements. Manufacturing sectors also face cost pressures as transport and energy costs rise. These effects eventually reach consumers through higher prices for goods and services.
Has India built any protection against oil shocks?
India has taken steps in recent years to reduce its vulnerability to global oil shocks. These include diversifying import sources, building strategic petroleum reserves and increasing purchases from new suppliers.
However, given the country’s growing energy demand and heavy dependence on imports, global crude price movements will continue to have a major influence on the economy.In simple terms, when oil prices rise sharply, the impact spreads across multiple layers of the economy — from the import bill and current account deficit to inflation and household expenses.