Boiling oil menaces macro math
Tabhishek.mukherjee@livemint.com
hree things are certain in life—death, taxes, and West Asia erupting into conflict at regular intervals. The latest string of alarming headlines comes after Iran launched drones and missiles towards Israel, retaliating against a deadly strike on its consulate in Syria, and ratcheting up tensions in a region already grappling with the grisly Gaza conflict.
The US and other G-7 countries have rushed in to cool tempers, but if history is any indication, Israel and restraint cannot be used in the same sentence.
Untangling the web of internecine feuds in this perennial tinderbox might be a cognitive dead-end, but global markets have a more pressing, and selfish, concern—crude oil prices.
Global oil benchmark Brent crude darted up to near six-month highs of $92 per barrel last week, in anticipation of Tehran’s belligerence.
For India, oil prices touching the three-figure-mark bodes ill. The country is the third largest oil consumer and importer. India meets over 85% of its oil requirement through imports, making
Crude watch
The latest flare-up in tensions in the Middle East has pushed up oil prices it vulnerable to global price shocks.
India’s crude oil imports in the first 11 months of FY24 rose 0.4% year-onyear to 212.6 million tonnes, as per data.
In 2015, the Centre targeted reducing reliance on oil imports to 67% by 2022 from 77% in FY14, but the position has only deteriorated since. In
Crude imports have a major bearing on India's trade deficit the import dependency was at an all-time high of 87.4%, with insiders projecting a similar figure for 2023-24.
This expectedly puts a huge strain on the exchequer.
New Delhi’s crude import bill swelled to $158 billion in 2022-23 from $121 billion in the previous year. In FY24, it was $101.3 billion till January, with the full-year numbers set to be lower on the back of softer energy prices.
Red-hot crude also weighs on other vital parameters of India’s macroeconomic health.
India’s trade deficit—the gap between its imports and exports—narrowed to $240 billion in FY24 from $265 billion in FY23, thanks to benign oil prices. But crude shooting up in response to the Middle East tensions would reverse this positive trend.
This will have a spillover effect on the currency by spurring dollar demand.
Elevated oil prices also stoke inflationary pressures by driving up prices of petrol and diesel.
While retail inflation moderated to 4.85% yearon-year in March, it is still above RBI’s target of 4%. However, weather-related idiosyncratic events (which can propel food inflation) and rising oil prices are among the most potent threats to the moderating trend in inflation, Morgan Stanley analysts said.
“Rising crude oil prices and resurgence in commodities and soaring geopolitical tensions are increasing risks to India’s external sector,” Elara Capital said in a note on 16 April.
Macro worries aside, the market is also fretting about the repercussions on the corporate sector.
Tyre and paint manufacturers, fastmoving consumer goods, carbon black and lubricant makers and specialty chemicals firms are reliant on crude oil and its derivatives. Soaring crude prices can put pressure on their margins.
The biggest blow will be on state-owned oil marketing companies if pump rates are not hiked.
“Overall, we see elevated crude/refined product prices as negative for integrated margins of oil marketing companies,” brokerage Motilal Oswal said.
Companies will keep a wary eye on the geopolitical temperature in the current fiscal year.
While death, taxes and West Asian crises may be the three certainties of life, there is a fourth factor that perhaps trumps them all. And that is hope.
BIG IMPACT ELEVATED
oil prices stoke inflationary pressures by driving up prices of petrol and diesel
is no exaggeration to say that crude oil is the fulcrum on which India’s macro vigour depends