India's Oil Import Bill Could Widen To $101-104 Billion In FY25, Says ICRA
A $10 per barrel uptick in average crude prices pushes the net oil imports by $12–13 billion during the year, according to ICRA's calculations. This enlarges the current account deficit by 0.3% of GDP
India's oil import dependency is expected to remain high if the discounts enjoyed by the country on Russian crude purchases remain at prevailing low levels, according to ICRA Ltd.
Assuming an average price of $85 per barrel of oil, the rating agency expects India’s net oil import bill to widen to $101-104 billion in FY25, compared to the $96.1 billion bill in FY24.
Volume of Russian Crude Imported
According to data from the Ministry of Commerce and Industry, the share of Russian crude imports in volume terms jumped to 36% in the first 11 months of fiscal 2024, compared to 2% in FY22.
Whereas, aggregate volumes from West Asian countries like Saudi Arabia, UAE and Kuwait fell to 23% from ~34% previously.
Benefits of Russian Crude
In the past year, India received a significant discount on oil imports from Russia compared to West Asia, ICRA said. Compared to imports from West Asia, the price per unit of oil from Russia was 16.4% lower in FY23 and 15.6% lower in the first 11 months of FY24.
This price difference led to estimated savings of $5.1 billion and $7.9 billion on India's oil import bill for FY23 and 11MFY24, respectively, the agency said.
ICRA states that these savings are believed to have helped compress India's current account deficit (CAD) to GDP ratio by 15 to 22 basis points in FY2023-24.
Benefits Have Narrowed
Despite the large amount of savings, ICRA reports a significant decrease in the discount India received on Russian oil imports compared to West Asia.
While Russia remained a cheaper source of oil compared to West Asia, the advantage diminished in the latter part of the fiscal year.
According to the rating agency, the average monthly discount narrowed from 23% in the first half of the FY24 (April-August FY24) to only 8% in the second half (September-February FY24).
This discount reduction resulted in a decrease in overall savings from Russian oil imports. Savings likely dropped from $5.8 billion in the first half of the fiscal year to $2 billion in the second half.
Uptick In Oil Prices
ICRA also stated that any escalation in the ongoing Iran-Israel conflict, which will drive Brent crude prices upward, could put more upward pressure on the value of India's net oil imports in the current fiscal year.
A $10 per barrel uptick in average crude prices pushes the net oil imports by $12–13 billion during the year, according to ICRA's calculations. This enlarges the current account deficit by 0.3% of GDP.
Similarly, if the average crude oil price rises to $95 per barrel in FY25, CAD is likely to widen to 1.5% of GDP from the ICRA's current estimate of 1.2% of GDP for the fiscal year.
