Crude import costs are rising again, with the Indian basket jumping $8.07 a barrel in ten days, from $68.21 on July 3 to $76.28 on July 13. This could put expected fuel-price cuts on hold and revive pressure on the import bill, oil marketing companies, airlines and fertiliser producers.
Every $10-a-barrel increase translates into roughly $42 million a day in additional crude import costs for India, according to Pankaj Srivastava of Rystad Energy. He said pressure on OMC marketing recoveries would build gradually as near-term procurement is largely secured.
The fresh US-Iran escalation has renewed concern over the Strait of Hormuz, a critical corridor for India’s crude, LPG and LNG imports. An analyst said the move towards $86 a barrel was “primarily a geopolitical risk repricing rather than a reflection of stronger underlying demand fundamentals”.
The analyst said Hormuz uncertainty and possible tighter sanctions on Russian oil had raised supply risks. Sustained crude above $85 would increase India’s energy import costs, currency pressure, freight and insurance expenses, while reducing OMCs’ ability to absorb the impact.
Global prices hit four-week highs on Tuesday after the US reimposed a naval blockade of Iran and renewed attacks heightened concern over Hormuz flows. Brent rose $2.89, or 3.47%, to $86.19 a barrel, its highest since June 12. WTI gained $1.53, or 1.96%, to $79.67, its highest since June 16.
“With the US-Iran conflict reigniting and the Strait of Hormuz facing closure again, Brent has already risen and could surge toward $100/bbl within days if the situation continues,” said Manas Majumdar, Leader, Oil & Gas, Fuels & Resources, PwC India. Majumdar said gas prices would move in tandem. “For every $10/bbl rise in crude, India’s subsidy bill grows by roughly $13-15 billion, widening the current account deficit,” he said.
“The retail fuel price cuts we were expecting post-ceasefire are now off the table,” Majumdar said, adding that cuts would push OMCs back into daily losses. ATF and fertiliser costs would be the first to feel the impact. India is better placed on availability after diversifying sourcing to more than 40 countries, he said. “The real pain will be on pricing, not volume. Expect a 20-30% jump and a fresh scramble for non-Gulf cargoes as buyers try to hedge against Gulf supply risk.”
The renewed increase follows a sharp easing after the US-Iran memorandum of understanding signed on June 17. The Indian basket had fallen to $68.86 a barrel on June 27, more than 56% below its conflict-driven peak of $157.04 on March 23, after hostilities erupted on February 28. The July basket is weighted 79.40% towards sweet crude linked to dated Brent and 20.60% towards sour Oman-Dubai grades.
“Higher geopolitical risk translates directly into higher tanker freight rates and marine insurance premiums, increasing the delivered cost of crude oil, LPG/LNG and fertilizers,” Srivastava said. These costs would raise import expenses even if benchmark prices stabilise.
He expects the near-term impact on pump prices to remain limited unless Hormuz flows fall close to zero. Earlier fuel-price increases provide a buffer, while OMCs may absorb part of the higher procurement and logistics costs.
“Historically, retail fuel price revisions have occurred when the Indian crude basket averaged around $106/bbl. Therefore, unless crude prices sustain levels well above $110/bbl, a further increase in retail fuel prices appears unlikely,” Srivastava said.
“While oil marketing companies may absorb part of the near-term impact, a prolonged price environment above US$85/bbl would progressively constrain that flexibility and increase pressure across the petroleum fuels value chain,” said Praveen Rai, Director, Grant Thornton Bharat.
