India imports nearly 85% of its total Crude oil consumption every year.
India's own production has been below 700,000 barrels per day for a long time.
Why & how does rising Crude Oil hurt India?
A short thread 🧵
India imports nearly 85% of its total Crude oil consumption every year.
India's own production has been below 700,000 barrels per day for a long time.
Iran 17%,
Saudi Arabia 16%,
UAE 14%,
USA 9%,
Qatar 8%,
Others 38%
India import share for Oil from Russia is under 2%, an insignificant number.
Assuming that Oil prices are at $75 (last year),
India's oil import bill is ~ $165bn
India exports refined petroleum products as well. At $75 oil price those exports would amount to $58bn
=Oil trade deficit of $105bn
$100, India's oil trade deficit (imports - exports) would be ~ $140bn
For every $10 rise in Crude Oil from say $100, India's oil trade deficit will rise by ~$15bn
For instance at $120 Oil price it would be ~ $170bn
India's ex-oil Goods trade deficit at current run rate is likely to be ~$100bn,
At $100 Oil add $140bn to trade deficit and it totals to $240bn
$240bn is a large deficit number.
How does Balance of payment (BOP) stack up at this no.? Read on
India is likely to have a surplus of ~$110bn on net services exports,
$80bn in inflows through remittances (NRI's sending money into India)
and India sees outflows of $38bn in primary income.
Goods Trade deficit -240bn
Services surplus +110
Remittances +80
Primary income -38
Total, Current account deficit: -$88bn
How do we cover this on BOP?
India gets, on average, $45bn in FDI inflows;
+can get $10bn in FPI inflows totaling to $55bn
It also raises $25bn through ECBs & other short term loans.
So India's BOP can remain normal when Oil trades between $95 to $100.
What happens when Oil prices spiral?
Almost all the other heads do not move as quickly as oil deficit can. In that scenario it can become a direct headwind for India.
BUT, MOST Important point: Oil has to be at or above $100 for 12 months for this impact in nos
Inflation: For every $10 rise in Oil it adds 90bps to wholesale inflation and about 25bps to consumer inflation in India over a 12 month period
During a market correction, India's financial account can see FPI outflows which adds stress to BOP
-In case Oil prices trade above $100 for a few weeks and revert back below pre-conflict levels of $90, India will have minimal impact
-If Oil stays above $100 or say $120 for even 3 months or more, India's external situation will deteriorate
If there is a de-escalation / ceasefire, the Russian Oil & Gas will slowly come back to market and Oil prices will cool.
Russia O&G is suffering due to self sanctions by companies and it is yet to see full sanction by Govts.
