Surge in crude prices poses risk to India's current account deficit as every $10 rise in oil prices widens CAD by $15 Bn: UBI Report

ANI June 18, 2025 307 views

Rising crude prices could push India's current account deficit higher, warns a UBI report. Every $10 increase in oil prices may widen the deficit by $15 billion this fiscal. While services exports provide a cushion, geopolitical risks loom over oil markets. The bank projects FY26 CAD at 1.2% of GDP amid commodity price pressures.

"We see a marginal upward risk to our estimate for the current account deficit for FY25 GDP" – UBI Report
New Delhi, June 18: Amid rising global crude prices, India's current account deficit (CAD) for FY25 faces an upward risk, as every USD 10 per barrel increase in oil prices can worsen the annual CAD by nearly USD 15 billion, according to a report by Union Bank of India (UBI).

Key Points

1

Every $10 oil hike may widen CAD by $15 Bn

2

FY25 deficit projected at 0.9% of GDP

3

Services trade surplus offsets oil deficit

4

Geopolitical tensions threaten crude stability

The bank has retained its CAD estimate at 0.9 per cent of GDP for FY25 but flagged a marginal upside risk due to commodity price pressures. Looking ahead, the CAD is projected to widen to 1.2 per cent of GDP in FY26.

"We see a marginal upward risk to our estimate for the current account (C/A) deficit for FY25 GDP. We continue to maintain our view of widening in C/A deficit in FY26 to 1.2 per cent in GDP vis-a-vis an estimated 0.9 per cent in FY25," the report stated.

The Brent crude prices have fluctuated between USD 64 to USD 76 over the last month. Amid geopolitical conflict, crude prices have surged 14 per cent in the last 15 days.

UBI noted that global commodity prices, especially crude oil and metals, will be key to India's trade deficit outlook. A sustained uptrend in these prices could weigh on India's external trade performance. However, weak global demand and tepid export growth may limit the overall impact.

The report added that geopolitical developments, including tariffs and any prospective trade agreements with the US or Europe, would also significantly influence India's trade scenario.

On the brighter side, the invisible surplus continued to remain strong in FY25, offering a cushion to the CAD. India recorded a healthy services trade surplus of USD 188.75 billion, helping to offset the oil trade deficit of USD 122.45 billion.

However, the report cautioned that ongoing geopolitical tensions in the Middle East and their effect on oil markets must be watched closely, given the CAD's high sensitivity to oil price fluctuations.

Reader Comments

R
Rajesh K.
This is worrying news for common people like us. Every time oil prices rise, petrol/diesel rates shoot up and everything becomes expensive. Government should focus more on renewable energy sources to reduce this dependency. Solar power has great potential in India! 🌞
P
Priya M.
The services surplus is our saving grace! IT sector and remittances are doing heavy lifting for our economy. But we can't take this for granted - need to diversify our export basket beyond software and petroleum products.
A
Amit S.
Middle East tensions affecting our economy again... This shows why we need stronger strategic oil reserves. Also, why aren't we pushing harder for electric vehicles? China is way ahead in EV adoption while we're still debating petrol prices.
S
Sunita R.
The report mentions trade agreements with US/Europe - this is crucial! We need better trade deals to boost exports. But first, our manufacturing sector needs to become more competitive globally. Make in India must become Export from India.
V
Vikram J.
While the numbers look concerning, let's not panic. Our forex reserves are healthy at over $600 billion which can cover this deficit. RBI has managed such situations well in past. But yes, long term solution is reducing oil dependence.
N
Neha T.
Interesting analysis but misses one key point - how this affects inflation. Higher CAD → weaker rupee → more expensive imports → higher prices for everything. Common man suffers the most in this chain reaction. Hope policymakers are watching! 🤔

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Tags:
crude oil prices India current account deficit UBI report trade deficit FY25 GDP Brent crude