The West Asian crisis and Russian sanctions have resulted in India spending more on crude oil imports than ever before. As the import bill rises, pressure on the dollar is also mounting.

Crude oil imports become expensive

Oil imports are becoming more expensive for India. Data from the Petroleum Planning and Analysis Cell (PPAC) reveals that India's crude oil import bill increased by 48% to $74.8 billion during April-August. It's not because of any increase in quantity, but rather because of the rise in global crude oil prices.

India spent $74.8 billion on crude oil imports between April and August this year, a 48-50% increase from $50.4 billion in the same period last year. On the afternoon of September 21st, Brent crude was trading at around $102 per barrel, down 2% from its previous close. However, despite this decline, due to the deteriorating situation in West Asia, crude oil prices have remained above $100 per barrel for more than 18 days.

How much oil did India import?

India imported 100.7 million tonnes of oil during April-August this year, compared to 101.1 million tonnes in the same period last year. According to PPAC data, the import bill in August rose 18% to $11.7 billion, while volumes fell 3% to 19 million tonnes. Crisil Intelligence has raised its Brent crude oil price forecast for this fiscal year to $88-93. It is projected to rise 25-32% year-on-year due to inventory depletion and continued tensions in West Asia.

Crisil Intelligence states that rising energy prices increase inflation in the economy. When market demand is strong, companies easily pass on their increased costs or input costs to customers, making products more expensive. The Wholesale Price Index (WPI) inflation rate of 9.9% in August confirms this trend.

Pressure on the Indian economy

The US-Iran war and ongoing tensions in West Asia have severely impacted global supply chains, driving up crude oil prices. Meanwhile, the US has tightened restrictions on Russian oil imports, reducing the amount of discounted crude oil available from Russia. Consequently, India is being forced to turn to more expensive suppliers.

Obviously, as imports become more expensive, India's trade deficit and current account deficit will also increase. Since imports are paid for in dollars, if more dollars are spent now than before, the Indian rupee will come under increasing pressure and weaken against the dollar.

Even though the prices of petrol and diesel are stable at the domestic level, if crude oil remains at Rs 100 billion or higher for a long time, then the cost of logistics and manufacturing will increase, due to which there is every possibility of an increase in inflation at the retail level.