India’s oil trade deficit is expected to widen sharply again in the current fiscal as rising crude oil prices and weakening exports of refined petroleum products increase pressure on the country’s external balances, according to a report by CRISIL.
In its latest 'Quickonomics' report titled 'Oil’s not well', the rating agency says India’s oil trade deficit had already begun worsening from fiscal 2024 onwards, despite softer crude oil prices, marking a significant break from historical trends.
Traditionally, India’s oil trade deficit narrowed whenever global crude oil prices declined. However, according to CRISIL, the pattern changed over the past two fiscals, as exports of refined petroleum products declined even as crude oil imports continued to rise.
“From fiscal 2024, the pressure on the oil trade deficit was exacerbated because exports of refined petroleum products fell for two consecutive fiscals even as oil imports continued to rise,” the report says.
India imports more than 85% of its annual crude oil requirement, making the economy highly vulnerable to global energy price swings. CRISIL noted that while crude oil import volumes have steadily increased over the years, exports of refined petroleum products have largely remained flat, except for a temporary surge after the COVID-19 pandemic.
The report warned that the situation is likely to deteriorate further due to rising global oil prices.
CRISIL expects Brent crude oil prices to average between US$90/bbl (per barrel) and US$95/bbl in fiscal 2027, sharply higher than the average price of US$70.3/bbl recorded in the previous fiscal.
“Now with prices rising, the oil trade deficit is expected to be even higher this fiscal,” the report says.
The agency also cautioned that a larger oil import bill, combined with possible pressure on remittance inflows from West Asia, could significantly widen India’s current account deficit (CAD).
CRISIL forecasts India’s CAD to rise to 2.2% of gross domestic product (GDP) in the current fiscal from an estimated 0.8% in the previous fiscal.
The report highlighted that the recent widening of the oil trade deficit was particularly notable, occurring even during a period when crude oil prices were relatively subdued. According to CRISIL, this represented a structural shift in India’s oil trade dynamics rather than a temporary price-led imbalance.
The report showed that oil imports have steadily climbed over the past decade, while exports of refined petroleum products failed to keep pace in recent years. Simultaneously, the oil trade deficit in dollar terms continued to rise despite Brent crude prices moderating between fiscal years 2024 and 2026.
Higher oil prices could also have wider macroeconomic implications for India, including inflationary pressures, stress on the rupee and increased subsidy burdens, if fuel prices are not fully passed on to consumers, the rating agency says.
India remains one of the world’s largest crude oil importers, and changes in global oil prices have a direct impact on trade balances, inflation, fiscal management and household consumption.
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