India's oil import bill expected to reach $101-104 billion in 2024-25

ICRA, a domestic rating agency, has projected that India's net oil import bill may increase to USD 101-104 billion in the current fiscal year from USD 96.1 billion in the previous year, with potential escalations due to the Iran-Israel conflict.

The agency highlighted that any continuation of low discounts on purchases of Russian crude could further widen the import bill.

"India's oil import dependency remains high, and if the discounts on purchases of Russian crude persist at current levels, ICRA anticipates India's net oil import bill to expand to USD 101-104 billion in FY2025," stated ICRA.

Furthermore, the agency emphasized that an escalation in the Iran-Israel conflict could exert upward pressure on the value of net oil imports in the ongoing fiscal year.

ICRA's analysis indicated that a USD 10/barrel increase in the average crude oil price for the fiscal year would elevate net oil imports by USD 12-13 billion, potentially enlarging the current account deficit (CAD) by 0.3% of GDP.

Based on these projections, if the average crude oil price were to rise to USD 95/barrel in FY2025, ICRA estimated that the CAD could widen to 1.5% of GDP.

The current account deficit, reflecting the disparity between the value of India's imports and exports, stood at 0.8% in the previous fiscal year.

India heavily relies on imports for more than 85% of its crude oil requirements, which are refined into various fuels such as petrol and diesel.

ICRA noted a decline of 15.2% year-on-year in the value of India's imports of petroleum crude and products during April-February of the last fiscal year, despite a slight increase in volumes during the same period.

This decline was attributed to the decrease in average global crude oil prices and savings resulting from increased purchases of discounted Russian crude.

The share of crude petroleum imported from Russia surged to 36% in April-February FY2024 from 2% in FY2022, while imports from West Asian countries (Saudi Arabia, the UAE, and Kuwait) decreased to 23% from 34%, respectively.

ICRA estimated that the lower imputed unit value of imports of Russian oil, compared to imports from West Asia, led to significant savings in India's oil import bill, compressing the CAD/GDP ratio by 15-22 basis points in FY2023-24.

However, the agency highlighted a sharp narrowing of monthly discounts relative to price over the fiscal year, which may have resulted in reduced savings related to the purchase of Russian crude.

Following the conflict in Ukraine, Western nations opted to boycott Russian oil, prompting Moscow to offer discounts. Indian refiners capitalized on these discounted rates.

Moreover, recent tensions in the Middle East pose a threat to crude oil import routes. Earlier this month, Iran initiated drone and rocket attacks on Israel, which retaliated with missile strikes.

India imports oil from various Middle Eastern countries and liquefied natural gas (LNG) from Qatar through the Strait of Hormuz, a critical sea passage between Oman and Iran.