# India’s Oil Bill Soars Nearly 60% as Middle East Conflict Threatens Global Energy Routes
India is now facing a new economic challenge as the Middle East’s worsening troubles are driving up global oil prices and sharply increasing the country’s crude import bill.
The cost of India’s crude oil imports rose almost 60 per cent in the three months to June compared to the same period a year ago, according to petroleum ministry data. Despite a slight decline in import volumes, a rise in international prices has raised the overall cost.
The development is especially important for India, which imports nearly 88 per cent of the crude oil it consumes. A sustained rise in global oil prices could put pressure on government finances, widen the trade deficit and make it more difficult for policymakers to control inflation.
The price escalation comes as tension between the United States and Iran is growing. US forces have conducted several consecutive nights of strikes against Iranian targets such as air defence systems, coastal surveillance facilities, maritime assets and missile storage facilities.
So much of the concern is directed at the Strait of Hormuz, one of the world’s most important energy routes. About one-fifth of the world oil traded internationally flows through the narrow waterway. For India, its risks are even greater, with about 40 per cent of its crude imports, 60 per cent of its LNG supplies and nearly 90 per cent of its LPG imports passing through the route.
Analysts say India still has some breathing room in the short term. Sumit Ritolia, lead research analyst at energy intelligence firm Kpler, said the Indian crude supplies should be sufficient until at least mid-September. He cited India’s more diversified sourcing strategy in the form of supplies from Russia, Venezuela, West Africa and the Middle East.
But the situation is extremely fluid. Houthi rebels have also declared a naval blockade in Yemen against Saudi Arabia and there are fears that another critical Gulf energy route could be involved in the conflict.
That caused oil markets to be very fast on the move. Brent crude climbed to $91 and West Texas Intermediate climbed to $85.
But analysts say that the market is still very sensitive to developments in the region and a new attack and/or disruption or escalation may trigger a strong rally in oil prices.
The shipping activity through the Strait of Hormuz has already slowed sharply. Only four ships crossed the waterway on Sunday compared with eight the day before, as shipowners and insurers become more and more concerned about the security risks.
Two tankers belonging to the Greek shipping company Dynacom Tankers were also hit by projectiles off Oman’s coast. Meanwhile, several other incidents involving tankers trying to sail on other routes have fuelled fears about the safety of commercial shipping.
The economic impact of a sustained oil shock on India will be particularly significant. Any dollar that a country pays for crude increases the country’s import burden and is putting pressure on the rupee. Higher fuel prices also hurt the economy and affect transport, food costs and household energy costs as well.
India’s consumer inflation rose to 4.38 per cent in June, well above the Reserve Bank of India’s 4 per cent inflation target. But a sustained rise in oil prices could make inflation more difficult.
We are seeing the same kind of impact in the United States now, with average petrol prices up to $4 a gallon and rising again in the summer driving season. And the rise in prices will only add further political pressure on President Trump heading into the November elections.
And Ukraine’s attacks on Russian oil refineries have disrupted fuel production and forced Moscow to import gasoline, adding another layer of uncertainty to global energy markets.
India is also watching a proposed US Senate bill which would impose 100 per cent tariffs on countries that purchase Russian oil or gas. If passed, the measure could create new complications for India’s energy strategy and increase pressure on its crude sourcing decisions.
With the Middle East conflict still far from settling, India is likely to be heading into a period of fresh energy uncertainty. For a country that relies on imported crude, the next few weeks will tell us if the current oil shock is manageable or a much bigger economic issue.
