Crude surge, rupee fall may hit India's forex reserves
NEW DELHI: If the conflict in West Asia persists, India's foreign exchange reserves could face pressure as two adverse external dynamics converge: a sustained rise in Brent crude prices and continued depreciation of the rupee.
Brent crude, the benchmark for India's oil imports, has climbed in recent weeks, driven by escalating tensions between Iran and Israel. Fears of a wider regional conflagration - especially one that disrupts the Strait of Hormuz, through which nearly 20% of global crude flows - have triggered speculative surges in global oil markets.
Although intermittent diplomatic efforts have helped temper price spikes, Brent remains significantly elevated by recent standards.
For India, which relies on imports for over 85% of its crude oil needs, such volatility is particularly consequential. The situation is further compounded by the rupee's depreciation. Between June 2 and 19, the currency fell from Rs 85.35 to Rs 86.84 per US dollar—a 1.75% decline.
While seemingly modest, the effect is magnified in the context of dollar-priced oil. When both crude prices and the rupee move unfavourably, the impact on import bill is considerable. Estimates suggest that each Rs 1 drop in the rupee's value could raise the annual oil import burden by Rs 8,000–10,000 crore, assuming stable import volumes and crude benchmarks.
These pressures extend beyond the external sector. Higher crude prices typically lead to increased fuel costs, which in turn raise transport and logistics expenses, pushing up inflation. Although retail fuel prices have so far remained unchanged, public sector oil marketing companies are reportedly absorbing the excess cost—a measure that cannot be sustained indefinitely without weakening their financial health.
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