For Every $10 Hike In Crude, Import Bill Will Go Up By $14 Billion
Crude price surge may swell India’s import bill, stoke inflation
Chennai: Amidst tensions in the Middle East, a sustained rise in crude oil prices could sharply inflate India’s import bill, with every $10 per barrel increase adding an estimated $13–14 billion annually. It can also lead to a spike in inflation.
The escalating tensions around the Strait of Hormuz and the wider Middle East conflict threaten a key global energy chokepoint and, by extension, India’s energy security, said Prashant Vasisht, Senior Vice President and Co-group Head, Corporate Ratings, ICRA.
"For every $10 of increase in the crude oil price on an average basis, the annual impact on India's crude oil import bill is about $13 to $14 billion. Then the oil marketing companies could see their margins being compressed because of marketing margins being lower. And this could also impact inflation if crude oil prices," he said.
About 20–21 million barrels per day—nearly 20 per cent of global petroleum liquids consumption—pass through the Strait of Hormuz. For India, the dependence is substantial: roughly 50 per cent of crude oil imports and 54–55 per cent of LNG supplies transit this route. With both the Strait of Hormuz and the Red Sea corridor currently disrupted due to active hostilities, any prolonged closure could severely constrain supplies.
Alternative routes offer limited relief. While a few pipelines exist, they can handle only a fraction of the volumes that typically pass through the strait. If maritime movement remains unsafe for an extended period, supply shortages could emerge, pushing global crude prices higher.
India could attempt to diversify sourcing to regions such as the US, South America or Africa. However, such alternatives come at a cost. Freight rates from the Middle East are typically 40–70 cents per barrel, owing to proximity, whereas shipments from the US can range from $2.5 to $4 per barrel, with freight rates themselves highly volatile. In a tight global market triggered by disruption, India would face not just higher transport costs but elevated benchmark crude prices as well, compounding the import burden.
Since tensions escalated about two weeks ago, crude prices have already climbed from around $65 per barrel to $72–73. While prices have stabilised at these levels over the past couple of days, the trajectory will depend heavily on how long the disruption lasts. In 2008, geopolitical tensions helped propel crude prices to nearly $140 per barrel.
Beyond oil, broader trade ties with the Middle East could also be affected. India exports consumer goods, textiles, and gems and jewellery to the region, and disruptions in key shipping routes could impede these flows. The large Indian diaspora in the Gulf adds another dimension. Remittances may initially spike as expatriates send funds home amid uncertainty, but could decline if conflict persists and employment conditions weaken.
While sanctions have curtailed imports from certain Russian suppliers, India can still procure non-sanctioned Russian crude. However, the broader outlook remains contingent on geopolitical developments and the duration of supply disruptions in this critical energy corridor.
