India’s oil trade deficit to widen as West Asia conflict triggers ‘largest energy shock’: Crisil

India’s crude oil trade deficit is expected to widen sharply this fiscal as rising global oil prices and disruptions caused by the ongoing West Asia conflict increase pressure on the economy, according to a report by Crisil released on Tuesday.

Oil trade deficit

India has historically faced pressure on its oil trade deficit because it imports more than 85% of its annual crude oil requirement. While crude import volumes have steadily increased over the years, exports of refined petroleum products have largely remained flat, except for a brief surge following the Covid-19 pandemic.

According to the report, the pressure on the oil trade deficit intensified from fiscal 2024 onwards as exports of refined petroleum products declined for two consecutive years even as crude oil imports continued to rise.

“As a result, the oil trade deficit in dollar terms increased despite a decline in crude oil prices during the period,” the report said, noting that this marked a departure from the earlier trend when falling crude prices typically helped narrow the deficit.

The situation is expected to worsen further this fiscal amid rising crude prices. Crisil said it expects Brent crude to average $90-95 per barrel in fiscal 2027, up from $70.3 per barrel last fiscal.

Current account deficit may widen

The ratings agency also warned that the worsening oil trade balance, coupled with possible pressure on remittances from West Asia, could significantly widen India’s current account deficit (CAD). It expects CAD to rise to 2.2% of GDP this fiscal from an estimated 0.8% last fiscal.

In a separate assessment, Crisil Intelligence described the ongoing West Asia conflict as the “largest energy shock on record”, warning that the prolonged disruption has begun materially affecting India’s economy through higher oil prices, freight costs and supply chain disruptions.

“The downside risks to the economy have begun materialising with over two months of unresolved West Asia conflict. The closure of the Strait of Hormuz has created the largest energy shock on record,” the report said.

It added that the impact could persist even after trade routes reopen due to extensive damage to oil and gas infrastructure in the region.

“The shock extends beyond energy to freight and insurance costs, supply chains, and fertilisers,” Crisil said, adding that the disruption is creating a “multidimensional impact on the economy.”

Against this backdrop, the agency revised upwards its Brent crude oil forecast for FY27 to $90-95 per barrel from its earlier estimate of $82-87 per barrel.