A clarion call from India's oil trade deficit

Reducing oil import dependence requires India to also curb its demand for oil

- DHARMAKIRTI JOSHI & ADHISH VERMA

(ILLUSTRATION: BINAY SINHA)

The West Asia crisis is rippling through the Indian economy in multiple ways, with energy commodities, especially crude oil, having one of the biggest impacts.

Crude oil prices have risen a staggering 60 per cent since the conflict started in late February.

Despite declining, oil and oil products still account for a quarter of India’s total energy supply. India’s rising oil import dependence — with over 85 per cent of the domestic requirement being imported — makes it structurally vulnerable.

We import crude oil and export only a part of it as refined petroleum products. As the volume and cost of imports far exceed those of petroleum exports, there is a persistent oil trade deficit, which stood at $120 billion in FY26.

Typically, when crude oil prices fell, India’s oil trade deficit came down, and vice versa. But since the past two financial years (2024-25 and 2025-26) this relationship has broken down.

Despite cheaper crude oil — with the average price falling 15 per cent from $83 per barrel in FY24 to $70.3 per barrel in FY26 — India’s oil trade deficit surged 27 per cent, from $94.5 billion to $120 billion, because exports of petroleum products slipped.

There were largely three reasons for the softer global oil demand: The waning of post-pandemic surge in mobility, sluggish industrial growth, and the rising adoption of electric vehicles.

In India, the trend has gone the other way: Imports of crude oil have kept rising due to the country being the fastest-growing large economy. Not surprisingly, then, oil has been the largest contributor to India’s goods trade deficit in the two financial years since 2024. Worryingly, the current surge in crude oil prices could be sticky.