According to Business Standard, Brent crude at $108 a barrel is certainly negative for India, but its ultimate damage depends on whether the spike is brief or sustained and whether it disrupts physical supply. Dr. Manoranjan Sharma, Chief Economist at Infomerics Ratings, noted that a persistent $108 Brent price would worsen the triple deficits - trade balance, the current-account deficit (CAD), and the fiscal deficit, besides, pressuring the rupee and import inflation. He emphasized that Indian earnings momentum is seemingly back and economic growth remains strong, with reported trailing multiples on blue chips at less than 20 looking attractive. However, Indian equities are genuinely attractive versus other emerging markets at current valuations, with the broader market appearing very reasonable at around 22 times trailing multiples, though an average crude price of $100 could widen FY27 CAD to 1.9–2.2 per cent of GDP, from a projected 0.7–0.8 per cent. As per Kotak Securities, with Brent crude hovering around USD 106 per barrel, a sustained rise towards USD 120 per barrel could make an increase in retail petrol and diesel prices difficult to avoid, potentially forcing an increase in retail fuel prices.
The latest crude price surge above $108 per barrel follows significant infrastructure disruptions in key shipping routes. According to Reuters, a drone strike forced the shutdown of Saudi Arabia's East-West oil pipeline, a strategic route that allows the world's largest oil exporter to redirect shipments away from the Strait of Hormuz. The disruption threatens up to 4% of global oil supply, intensifying market pressure that had already gained 8% over the week as traders assessed the risk of further production disruptions. Additionally, the Strait of Hormuz saw a vessel hit by a projectile, causing a fire and forcing crew evacuation, while Iran separately reported one person killed and four crew members wounded aboard a commercial vessel struck off its coast. The Houthis have also reached the strategic island of Perim near Bab el-Mandeb, a transit route that has recently carried 4% to 5% of global oil supply. As per Kotak Securities, elevated crude prices could increasingly constrain the ability of oil marketing companies (OMCs) and the government to absorb higher costs without passing some of the burden on to consumers.
Russian crude oil continues to be the biggest component of India's oil import basket but with attacks on its export infrastructure, will supply tighten? According to The Times of India, Russian crude oil supply continues to be the biggest support for India at this moment, but the war with Ukraine is increasingly complicating the supply picture. There are full or partial outages at numerous refineries that still require maintenance, with Russia unable to move all those barrels abroad due to export infrastructure being used close to maximum capacity while Black Sea shipments are being constrained by attacks, shipping risks and higher freight rates – currently freight from the Black Sea region is estimated at $20/bbl, while freight from Baltics at around $13/bbl. Natalia Katona, Commodity Analyst, notes that the reduction in Russian exports is somewhat disproportionate – and is mostly driven by the decline in loadings at the Black Sea terminals. China's demand for Russian crude has been somewhat subdued, but once that rebounds meaningfully, India and China will be competing for the same Russian crude, pushing up costs. China's seaborne imports of Russian crude increased from 1.40 million b/d in July to 1.69 million b/d in August, in addition to approximately 1 million b/d arriving through pipelines, with experts seeing this as the more immediate risk for India than an outright drop in Russian production.
As per Business Standard, expensive oil creates what economists call a triple-deficit problem for India. The trade deficit can widen as India imports most of its crude oil requirement, with India imported 88.6% of its crude requirement in April–January FY26. The current-account deficit can increase due to a larger oil import bill, with an average crude price of $100 could push India's FY27 CAD to around 1.9–2.2% of GDP, compared with a projected 0.7–0.8%. The fiscal deficit could come under pressure as the government faces difficult trade-offs between passing through fuel price increases to consumers or absorbing costs through excise cuts or fuel subsidies. RBI research estimates that a $10-per-barrel oil-price increase can add roughly 49 basis points to headline inflation, while if the government absorbs the shock, it could add 43 basis points to the fiscal deficit. This creates a difficult policy trade-off, as absorbing costs through excise cuts or fuel subsidies protects inflation temporarily but strains fiscal arithmetic and oil marketing companies. As per Kotak Securities, sustained high crude oil prices could significantly raise pressure on India's economy by increasing the country's import bill, weakening the rupee, pushing up inflation and eventually forcing an increase in retail fuel prices, while potentially putting the Reserve Bank of India (RBI) on a rate-hike path.
According to Business Standard, the immediate market reaction is risk-off: Indian shares fell sharply as Brent crossed $108 amid concern about inflation and global interest rates. Airlines are among the most obvious losers as a large part of their operating costs is linked to aviation turbine fuel, with profit margins getting squeezed if fuel becomes more expensive and airlines cannot fully pass the increase on to passengers. Paints and chemicals companies are exposed to crude-derived raw materials, with higher oil prices raising input costs that companies may try to pass through higher prices. Logistics and transportation companies face higher diesel prices, increasing transportation costs unless companies can pass the additional cost to customers. Cement and consumer companies experience indirect pressure through higher transportation and energy costs, while higher inflation can reduce consumers' purchasing power if households have to spend more on fuel and food. However, oil producers such as ONGC and Oil India can benefit from higher crude prices as they gain from increased revenue and profitability, while refiners may benefit only if product cracks and pricing freedom offset cost pressure. As per Kotak Securities, a sustained rise towards USD 120 per barrel could make an increase in retail petrol and diesel prices difficult to avoid, potentially forcing an increase in retail fuel prices.
As reported by Business Standard, oil is India's largest import item, so a sustained increase in crude prices means Indian companies and the country as a whole need more dollars to pay for imports, putting pressure on the rupee. A weaker rupee can make other imports more expensive, creating another channel through which inflation can enter the economy. Madhusudan expects INR appreciation over the next year or two given the steepest REER fall in three decades and sufficient FCNR buffer to stop speculative hedging activity. He noted that INR trajectory is linked to crude prices and to some extent to DM long-end yields as well as the AI trade, though RBI will strongly defend around 96 or 97, I suspect. Potentially, foreign investors may pull money out if a prolonged oil shock makes them more cautious about emerging markets like India, expecting higher inflation, higher interest rates, weaker corporate earnings and a weaker rupee. However, $108 is not ipso facto a macro crisis as India has relatively low inflation, a CAD of 0.8% of GDP in H1 FY26 and substantial foreign-exchange reserves, which offer buffers, though if oil remains above $100 for several months, or shipping through West Asia is disrupted, the growth-inflation trade-off would significantly worsen.
