While crude oil prices have risen from USD 66 per barrel, before the US and Israel attacked Iran and Tehran retaliated, to around USD 120, liquefied natural gas (LNG) rates have more than doubled to USD 24-25 per million British thermal unit.
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Anuj Sethi, Senior Director at Crisil Ratings, said India imports 85 per cent of its crude oil, making its economy highly sensitive to global oil price movements.
The country consumes around 5 million barrels per day of oil. Besides, it meets half of its natural gas requirement through imports.
“The recent rise in crude to about USD 120 per barrel from USD 66 could lead to an additional foreign currency outflow of USD 7-8 billion per month, widening the current account deficit and increasing import-related inflationary pressures,” he said.
“This can lead to potentially higher logistics costs, manufacturing costs, food, and commodity prices. The impact of high crude prices will depend on duration, demand elasticity, and potential policy interventions.” While oil marketing companies have strong marketing margins to absorb some of the impact, sustained high crude prices may require retail fuel price adjustments or fiscal support to protect profitability. Integrated refiners could partially offset pressures through refining margins, and upstream producers may benefit from improved realisations to fund capital expenditure, Sethi said.
Aditi Nayar, Chief Economist at Icra Ltd, noted that a USD 10 increase in average crude prices could push the current account deficit up by 30-40 basis points, meaning an average price of USD 100-105 per barrel could result in a CAD of 1.9-2.2 per cent of GDP.
She added that the fuel component in India’s CPI is now 6.84 per cent (up from 4.2 per cent in 2012), though it remains lower than its 10.4 per cent weight in WPI. Consequently, crude price increases affect WPI inflation more than CPI.
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Icra estimates that a 10 per cent rise in crude oil prices could raise WPI inflation by 80-100 bps, and CPI by 40-60 bps, depending on the pass-through to retail fuel prices.
Higher fuel costs also raise transportation expenses, leading to second-round effects on goods and services prices. A sustained crude rally could pose significant upside risks to FY2027 WPI inflation of 2.7 per cent and CPI projection of 4 per cent, she said.
The new CPI 2024 base series assigned a slightly higher weight of 6.84 per cent to the fuel items against the 4.2 per cent included in the previous 2012 base series.
“Nevertheless, fuel items have a lower weight in the CPI (6.84 per cent; including petrol, diesel, LPG cylinder and piped natural gas, CNG, coal and kerosene) vis-a-vis the WPI (10.4 per cent; including crude oil, natural gas, and crude derivatives).
“Consequently, changes in crude oil prices will have a larger impact on the WPI compared to the CPI,” she said.
She added that the quantum of the impact on the CPI inflation trajectory will particularly depend on the extent of the change in retail prices of petrol, diesel and LPG, in terms of the immediate transmission.
“Overall, a sustained increase in crude oil prices could pose significant upside risks to ICRA’s FY27 WPI inflation forecast of 2.7 per cent, and to a smaller extent on the CPI inflation projection of 4.0 per cent, depending on the extent of pass-through to the retail prices on fuel items,” she said.
“Additionally, higher fuel prices would lead to an increase in transportation costs, thereby leading to a second-round impact by pushing up the prices of goods and services.”
Maulik Patel, Head of Research – Equirus Securities, said crude oil markets have entered a geopolitical risk-premium phase, with prices increasingly driven by supply security concerns rather than underlying demand fundamentals.
“The ongoing US-Israel-Iran conflict and disruption around the Strait of Hormuz have materially tightened the near-term supply outlook and pushed crude above YSD 100/bbl for the first time since 2022. If the war lasts for longer and limited volume passes through the Strait of Hormuz, then oil price can reach a very high level than its current level, and only demand reduction can bring some kind of relief to the oil price,” Patel said.
Sachin Sawrikar, Managing Partner, Artha Bharat Investment Managers IFSC LLP, said the current geopolitical environment, particularly tensions in West Asia and the risk of disruption around critical energy routes, has reintroduced volatility across global markets.
“Elevated oil prices remain the most immediate macro concern for emerging economies, including India.”
“For India, a sustained rise in crude prices has direct macroeconomic implications. As a large net importer of energy, higher oil prices can widen the current account deficit, increase imported inflation and potentially put pressure on the government’s fiscal arithmetic through higher subsidy burdens. If crude prices remain elevated for a prolonged period, this could complicate fiscal consolidation efforts,” he said.
Currency dynamics also become important in this environment. The rupee typically comes under pressure during periods of higher oil prices and global risk aversion. Currency volatility also impacts returns for foreign portfolio investors (FPI). Since global investors evaluate returns in dollar terms, rupee depreciation can erode equity gains, which in turn influences capital allocation decisions. “As a result, during ‘risk-off’ phases in global markets, FPI flows into emerging markets, such as India, tend to moderate”, he noted.
That said, domestic institutional flows and the improving financialisation of household savings have increasingly provided stability to Indian markets.
“Overall, while geopolitical shocks may drive near-term volatility, India’s structural growth drivers remain intact,” he added.