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India's Oil Import Bill May Soar $70bn Annually Amid West Asia Conflict

A report by Prabhudas Lilladher states that crude oil prices, elevated due to the West Asia conflict, are unlikely to return to pre-war levels of $65 per barrel in the near term. This could inflate India's annual oil import bill by more than $70 billion, as the country imports about 4.3 million barrels daily. Critical shipping routes like the Strait of Hormuz remain an uncertainty, and the destruction of refineries coupled with spiked freight and insurance costs will keep prices high. While India plans to diversify import sources and its economy is less oil-dependent than before, the price spike is still expected to impact inflation, demand, and manufacturing.

Key Points: India's Oil Import Bill Could Rise $70bn Annually: Report

  • Crude prices unlikely to drop to $65/barrel soon
  • India's annual oil import bill could jump over $70bn
  • Strait of Hormuz shipping route a major uncertainty
  • Supply chain damage and high shipping costs to persist
  • India to diversify imports from US, Russia, others
3 min read

Crude unlikely to return to pre-war levels soon; India's import bill may rise $70bn annually: Report

Crude oil prices may not return to $65/barrel soon, potentially inflating India's annual import bill by over $70 billion due to West Asia conflict.

"We believe crude prices are unlikely to revert to pre-Gulf war conflict levels of USD65/barrel. - Prabhudas Lilladher Report"

New Delhi, April 15

Crude oil prices have risen sharply due to the ongoing West Asia conflict and are not expected to return to the earlier level of $65 per barrel in the near term, according to a report by brokerage firm Prabhudas Lilladher. The report noted that the increase in prices is likely to persist, keeping India's import bill elevated for the coming months.

"We believe crude prices are unlikely to revert to pre-Gulf war conflict levels of USD65/barrel," the report said.

India buys around 4.3 million barrels of crude every single day. That adds up to about $180 billion a year. With prices now much higher, Prabhudas Lilladher estimates India's oil import bill could jump by more than $70 billion a year. "The current spike in crude prices is likely to inflate India's import bill by more than USD70bn/annum," the report said.

About 20% of the world's crude oil moves through the Strait of Hormuz. "Shipping route from Strait of Hormuz is critical for maintaining oil prices within a comfortable range and this remains a big uncertainty as of now," the report noted. "Further escalation of hostilities and any impact on Bab Al-Mandeb can further squeeze oil supplies and push prices up."

The brokerage noted that the war hasn't just hit tankers and routes. Several global natural gas and oil refineries have been destroyed. These aren't easy to fix. "Several global natural gas and oil refineries have been destroyed and would take quite a bit of time to come back to stream/normalise operation," the report said. When supply takes a hit and takes time to rebuild, prices stay high.

Even if the tensions between the US and Iran deescalate, freight charges, insurance costs, and tanker availability have all spiked and likely to remain at these levels for long. "There has been spike in costs of freight, Insurance and availability of tankers," the report said.

These add to the final price of oil even before it reaches India. The government did cut excise duty by Rs 10 earlier, which delayed the pain for consumers. But prices of aviation fuel and LPG have already gone up multiple times. Petrol and diesel hikes look likely once state elections are over, the brokerage said.

To manage the shock, India will try to buy more oil and gas from other countries. "We expect India to diversify its imports sources with higher imports from US, Russia, Norway, Australia etc. for both crude oil and Gas," the report said. Supply chains may adjust in a few weeks, but the overall price level is expected to stay elevated.

However, the brokerage noted that India is now less dependent on oil than before. Oil and gas imports used to be 6.8-7.3% of GDP 10-15 years ago. Now they are around 3.8% of GDP. So the impact of this price spike will be less than past oil shocks. But it won't be painless. "We expect second level impact of higher crude prices to affect inflation, demand and manufacturing in the coming months."

The brokerage further added that the war broke the supply chain, damaged refineries, and made shipping risky and expensive. Even if peace comes, it will take months to fix all that.

- ANI

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Reader Comments

P
Priya S
$70 billion extra every year? That's a staggering amount. While it's good that our dependency on oil as % of GDP has reduced, this will still push up inflation for everything from vegetables to transport. Hope the diversification to US and Russia helps quickly.
A
Aman W
The Strait of Hormuz situation shows how fragile global energy security is. Time to double down on renewables and electric vehicles. We can't keep being at the mercy of conflicts in faraway lands for our basic needs.
S
Sarah B
Living in India for 5 years now. The ripple effect of this on manufacturing and daily costs will be significant. LPG prices have already pinched my household. The report is right, the pain won't be painless even if the % of GDP is lower.
V
Vikram M
Respectfully, while the analysis is sound, it feels like we are always in reactive mode. We need a more strategic energy policy that buffers us from such shocks. Building strategic reserves and fixing our own refinery capacity should be top priority.
K
Karthik V
The timing is terrible. Just when post-COVID recovery was picking up pace. Higher fuel costs will slow down everything. Hope the government manages this carefully without hurting growth too much. Jai Hind!

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