India's Net Oil Import Bill Set to Rise to USD 101-104 Billion

India's Net Oil Import Bill Set to Rise to USD 101-104 Billion

India's dependency on oil imports is expected to drive its net oil import bill to USD 101-104 billion in the current fiscal year, according to a recent analysis by ICRA, a domestic rating agency. This projection marks a notable increase from the USD 96.1 billion recorded in the previous fiscal year of 2023-24.

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Factors Driving the Increase:

1. Impact of Russian Oil Imports:

• Lower value of Russian oil imports is estimated to have saved USD 7.9 billion in the 11 months of 2023-24, up from USD 5.1 billion in the preceding fiscal year.

• Continued low discounts on Russian crude purchases are expected to contribute to the widening of India's net oil import bill.

2. Escalation in Iran-Israel Conflict:

• Any escalation in the conflict between Iran and Israel could exert upward pressure on crude oil prices, further inflating India's import costs.

Effects on Current Account Deficit (CAD):

1. Crude Oil Price Sensitivity:

• ICRA's analysis indicates that a USD 10/barrel increase in the average crude oil price could push up net oil imports by USD 12-13 billion during the fiscal year, enlarging the CAD by 0.3% of GDP.

• If the average crude oil price reaches USD 95/barrel in FY2025, the CAD is likely to widen to 1.5% of GDP, up from the current estimate of 1.2% for 2024-25.

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2. Current Account Deficit Estimate:

• CAD, which reflects the difference between the value of India's imports and exports, is estimated at 0.8% for the fiscal year 2023-24.

Dependency on Oil Imports:

India's reliance on oil imports exceeds 85% for its petroleum needs, including petrol and diesel production at refineries.

Trends in Oil Imports:

1. Shifting Import Sources:

• The share of crude petroleum imports from Russia surged to 36% in April-February FY2024 from just 2% in FY2022, while imports from West Asian countries declined.

2. Impact on Import Bill:

• The lower unit value of imports from Russia, compared to those from West Asia, has led to significant savings in India's oil import bill, compressing the CAD/GDP ratio by 15-22 basis points in FY2023-24.

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Recent Developments:

1. Influence of Ukraine Conflict:

• Following the Ukraine conflict, Western nations' reluctance to import Russian oil prompted Moscow to offer discounts, which Indian refiners seized upon.

2. Middle East Conflict Concerns:

• Recent conflicts in the Middle East pose threats to India's crude oil import routes, particularly through the Strait of Hormuz, where Indian imports pass through.

In conclusion, while India's strategic oil sourcing shifts and geopolitical tensions impact its import bill, close monitoring and proactive measures are necessary to manage the associated economic implications effective

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