New Delhi: India faces a sharp increase in its oil import bill and renewed inflationary pressure as international crude prices move closer to USD 100 a barrel amid escalating tensions in West Asia and disruption to energy shipments through the Strait of Hormuz.
Brent crude futures climbed more than 2 percent to around USD 99 a barrel on Tuesday, while US West Texas Intermediate gained nearly 3 percent to about USD 94. The rally followed attacks on Saudi energy infrastructure and heightened hostilities involving Iran and the US, intensifying concerns over further disruption to global oil supplies.
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The Indian crude basket averaged USD 106.26 a barrel on Monday, according to data from the Petroleum Planning and Analysis Cell (PPAC). Its September average has climbed to USD 100.75, compared with USD 90.19 in August and USD 82.04 in July.
The rapid increase leaves India particularly vulnerable because it imports more than 88 percent of the crude oil it consumes. Higher prices increase the country’s dollar-denominated import expenditure, widen the trade deficit and can exert downward pressure on the rupee.
India’s crude import bill had already surged more than 56 percent to USD 63.4 billion during April-July, from USD 40.5 billion in the corresponding period last year. The increase was overwhelmingly price-driven: import volumes remained broadly unchanged at 81.9 million tonnes, compared with 81.5 million tonnes a year earlier.
The Indian crude basket comprises Brent and Oman-Dubai grades in a ratio of 77.81:22.19.
The price surge is also expected to squeeze the marketing margins of state-run fuel retailers Indian Oil Corporation, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd. The companies have been unable to pass on the full increase in international prices to consumers and are carrying accumulated losses linked to the West Asia energy crisis.
Retail petrol and diesel prices have remained unchanged for more than three months. They were last revised on May 25, when petrol was increased by Rs 2.61 a litre and diesel by Rs 2.71 a litre. Across four revisions in the second half of May, petrol prices rose by a cumulative Rs 7.35 a litre and diesel by Rs 7.53 a litre.
“The renewed hostilities between Iran and the US pose a challenge for the limited crude oil supplies coming through the Strait of Hormuz. Further, as Iran threatens to establish a new restricted maritime zone extending beyond the Strait of Hormuz, additional energy flows beyond the latter could be at risk,” said Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA Ltd.
“As a result of the surge in crude prices, marketing margins on auto fuels are likely to turn negative and domestic LPG under-recoveries could increase from the current Rs 200 per cylinder,” he added.
Traffic through the Strait of Hormuz, which normally carries about one-fifth of global oil and liquefied natural gas supplies, has slowed sharply. West Asian oil shipments have reportedly fallen to around 11 million barrels a day from about 18 million barrels a day since the conflict intensified.
The economic impact for India extends beyond oil companies and the government’s subsidy burden. Airlines, petrochemical producers, transporters and other energy-intensive industries face higher operating costs. If businesses pass these expenses on to consumers, the crude rally could feed into broader inflation through transport, manufacturing and logistics costs.
Wood Mackenzie said the disruption has materially altered Asia’s oil-demand trajectory. Asia-Pacific demand is projected to decline by 1.24 million barrels per day in 2026 and is not expected to return to pre-conflict levels until late 2027.
Petrochemical feedstocks such as LPG and naphtha have been among the worst affected in markets dependent on supplies transiting the strait, while demand for road fuels has proved comparatively resilient.
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“India is leading the regional recovery, surpassing pre-conflict demand levels first, with Southeast Asia following. China’s oil demand likely peaked before the conflict began,” Wood Mackenzie said.
The consultancy estimated that an extension of the West Asia conflict until the end of the year could reduce global crude runs by 1.4 million barrels per day during the fourth quarter of 2026, with Asia bearing the largest impact.
For India, the duration of the price shock will be critical. A short-lived spike could be absorbed partly through lower fuel-marketing margins. A prolonged period of crude above USD 100, however, would increase the pressure for higher retail fuel prices while posing wider risks to inflation, the current account and the rupee.
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