Flip-flops on Hormuz keep India refiners on the edge as crude spikes
New Delhi: India's oil import bill is back in focus after US President Donald Trump's proposal on Monday to levy a 20% fee on vessels
New Delhi: India's oil import bill is back in focus after US President Donald Trump's proposal on Monday to levy a 20% fee on vessels transiting the Strait of Hormuz sent crude prices soaring, raising concerns over the country's inflation and economic growth. While Trump later dropped the fee plan in favour of a blockade targeting only ships linked to Iran, the flare-up has underscored India's vulnerability to disruptions in the energy markets. The development drove Brent crude by 5% to over $87 a barrel on Tuesday, before easing to around $85 following Trump's flip-flop. The risks are significant for India, which imports about 90% of its crude oil requirements and spends more than $120 billion annually on crude imports. A sustained $1-per-barrel increase in oil prices raises the country's annual import bill by around Rs18,000 crore. Oil imports typically account for 17-25% of India's total annual import bill. Indian refiners, however, are well placed to meet near-term demand, having already tied up crude supplies till August and diversified sourcing beyond West Asia. "The supply scenario is again back to what it was a month ago. Refiners had diversified oil imports, so sourcing from non-West Asian sources would continue. Now, they are aware of the situation and also the alternatives for energy supplies," said Manas Majumdar, leader, oil and gas at PwC India.
Indian refiners are prepared to meet the near-term demand, with supplies tied up till August, Mint had reported earlier. Also Read | Indian refiners brace for oil volatility after fresh Iran-US strikes "However, the stocks with the refiners would be lower now compared to earlier, as they did not get the required time to replenish them. If the war escalated after some few months, then it would have been a different scenario with potentially better inventories with refiners," he added. "Compared with last year, every $10 per barrel increase in crude prices translates into roughly $42 million per day in additional crude import costs for India. While this will gradually increase pressure on oil marketing companies' marketing recoveries, the impact is expected to materialize more slowly than during previous disruptions because procurement for the near term is already largely in place," said Pankaj Srivastava, senior vice-president, commodities market - oil at Rystad Energy. Oil supply disruptions have already driven up inflation in the world's sixth-largest economy. The wholesale price index inched up towards double-digits to 9.87% in June from 9.68% in May due to higher food and energy prices, data released on Tuesday showed. A spike in oil prices could fuel broad-based inflation and weigh on growth at a time when the El Niño weather phenomenon and a weaker monsoon are already expected to put pressure on the economy.
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