Fueling Concerns: India’s Oil Import Bill Set to Hit Record Highs

India is one of the largest importers of oil globally, relying on imports for over 85% of its consumption needs. Consequently, fluctuations in crude oil prices directly impact the country’s economy. According to a report by ICRA, if the current trend of low discounts for buying Russian crude continues, India’s oil import bill could reach $101-104 billion in FY25, which could be concerning.

Let’s delve into the potential surge in India’s oil import bill in FY25 and its implications for investors.

What’s Happening?

As per Mint, ICRA estimates that India’s oil import bill (which represents the total amount spent on importing oil from abroad) could range between $101 and 104 billion in FY25. This projection is significantly higher than the estimated $96.1 billion in FY24. This suggests a substantial increase in our expenditure on oil imports, particularly if the average price of crude oil remains at $85 per barrel.

The increase in the oil import bill could lead to a rise in the current account deficit (CAD), posing risks of inflation and fiscal deficit escalation. ICRA predicts that the CAD could widen to $44-46 billion (-1.2% of GDP) in FY25, significantly higher than FY24’s $29-30 billion (-0.8% GDP).

Additionally, the report suggests that if the average price of crude oil increases by $10 per barrel, the oil import bill could rise by $12-13 billion, potentially increasing the current account deficit to 0.3% of GDP.

Reasons Behind the Increase in India’s Oil Import Bill

Several factors contribute to this surge, including:

Volatility in Global Crude Oil Prices: Geopolitical tensions and supply shortages have led to increasing international oil prices.

Decreased Crude Oil Imports from Russia: Due to the Russia-Ukraine conflict, India is importing less crude oil from Russia, necessitating purchases from other sources, which could be costlier.

Impact of Iran-Israel Conflict: Rising tensions between Iran and Israel could disrupt the oil supply, further affecting prices.

What Does It Mean for Investors?

The increase in India’s oil import bill could result in volatility in the stocks of oil and gas companies, as global oil prices fluctuate. Moreover, high oil prices could escalate inflation, leading to increased interest rates and market instability.

You can view the graph below to see the fluctuations in crude oil prices between FY 20-21 and 2024-25:

What’s Next?

In 2022-23, India fulfilled nearly 87% of its crude oil consumption through imports. However, the government is promoting biofuels, renewable energy, green hydrogen, and electric vehicles to reduce dependence on imports in the future. With these efforts, India hopes to decrease its reliance on oil imports in the future and become more self-reliant.

That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!

The article is for information purposes only. This is not an investment advice. Disclaimer: Teji Mandi Disclaimer