The rise in the price of Brent crude oil to around $108 per barrel is causing serious concern in India, an economy heavily dependent on oil imports. However, the ultimate damage will depend on whether this surge is short-term or prolonged, and whether it disrupts physical supplies.
For India, a high cost of crude oil is traditionally a negative signal. The scale of the negative consequences depends on whether the oil price remains above $100 for several months or if it is a temporary spike. This nuance is significant because between April and January of fiscal year 26, India imported 88.6% of its crude oil needs. When crude oil prices rise, the country has to spend more dollars to acquire the same volume of fuel, putting pressure on the trade balance, the rupee, and inflation levels.
Oil is considered an input commodity for the entire economy. While it is used directly for producing gasoline, diesel, and liquefied gas, its impact extends much further, affecting transport, manufacturing, the chemical industry, aviation, and many other sectors. Thus, a sharp rise in crude oil prices presents India with a problem that economists call a 'triple deficit.'
How does expensive oil affect the Indian economy?
Dr. Manoranjan Sharma, Chief Economist at Infomerics Ratings, noted that 'a sustained Brent price of $108 will exacerbate three deficits—the trade balance, the current account deficit (CAD), and the fiscal deficit, while also putting pressure on the rupee and import inflation.' According to RBI research estimates, an increase in oil prices by $10 per barrel could add approximately 49 basis points to the overall inflation level; in an alternative scenario, if the government absorbs the shock, it could increase the fiscal deficit by 43 basis points. This forces policymakers to choose between difficult compromises: passing on the price increases for gasoline, diesel, and liquefied gas increases transportation costs, food, and industrial goods, reducing real household income and consumption. Absorbing the shock through reduced excise duties or fuel subsidies temporarily protects inflation but creates a burden on fiscal arithmetic and oil marketing companies. At an average crude oil price of $100, the CAD in FY27 could widen to 1.9–2.2% of GDP compared to projected 0.7–0.8%.
Firstly, the trade deficit may widen. Since India imports most of the crude oil it consumes, rising prices lead to an increase in the country's import bill. For example, if India continues to import roughly the same amount of oil, but the price rises from $80 to $108 per barrel, the country must spend significantly more on imports, which can widen the gap between import expenditures and export revenues.
Secondly, the current account deficit (CAD) may increase. A larger oil import bill also contributes to a rise in CAD—a broad measure of the country's transactions with the rest of the world. According to the report data, an average crude oil price of $100 per barrel could push India's CAD in FY27 to 1.9–2.2% of GDP versus projected 0.7–0.8%.
Thirdly, there may be pressure on the fiscal deficit. The government has another option when oil becomes expensive: either let consumers pay higher fuel prices or absorb some of that increase. If the government tries to protect consumers by cutting excise duties or providing support to fuel companies, it takes on part of the costs, placing a strain on public finances. Thus, decision-makers face a dilemma: passing on the oil shock will lead to increased inflation; absorbing the shock will intensify pressure on the fiscal deficit.
What happens to inflation?
This is perhaps the most immediate problem for the population. Higher crude oil prices can increase the cost of gasoline, diesel, and liquefied gas. However, the impact is not limited to this. For instance, diesel is widely used for transporting goods. If transportation becomes more expensive, companies may ultimately pass these costs on to consumers, making everything from food to industrial goods more expensive. The result is imported inflation—inflation that permeates the economy through the rising cost of imported goods.
The RBI study mentioned in the report estimates that a $10 increase in oil prices per barrel could add about 49 basis points to the overall inflation level. Alternatively, if the government absorbs the shock, it could increase the fiscal deficit by approximately 43 basis points.
What does $108 oil mean for the RBI?
Higher oil prices can complicate the work of the Reserve Bank of India (RBI). If inflation rises due to expensive crude oil, it becomes harder for the central bank to maintain growth by lowering interest rates. Rising inflation may force rates and bond yields to remain high for longer. This is important for businesses, as borrowing becomes more expensive, and consumers may have less money for discretionary spending.
Simply put, expensive oil simultaneously harms consumption, corporate profitability, and public finances.
What does this mean for the stock market?
The initial reaction of stock markets is usually negative. When Brent exceeded $108, Indian stocks came under pressure as investors feared inflation, interest rates, the state of the rupee, and corporate profits. However, the impact is not uniform across all sectors.
Airlines: strong pressure
Airlines are among the most obvious losers from expensive crude oil. A significant portion of airline operating costs is tied to jet fuel. If fuel becomes more expensive, and airlines cannot fully pass this increase on to passengers, profit margins shrink.
Paints and Chemicals: rising input costs
Many paint and chemical companies rely on raw materials derived from oil. Consequently, rising oil prices can increase their input costs. Companies may try to offset this by raising prices, but their ability to do so depends on competition and consumer demand.
Logistics and Transport: increased expenses
Higher diesel prices increase transportation costs for logistics companies and enterprises moving goods by road. This can put pressure on margins if companies cannot pass on additional costs to clients.
Cement and Consumer Goods Companies: indirect pressure
The impact on cement and consumer goods companies is less direct but can still be substantial. Higher transport and energy costs increase operating expenses. At the same time, higher inflation can reduce consumer purchasing power. If households are forced to spend more on fuel and food, they have less money for other goods.
Sharma stated: 'The immediate market reaction is risk aversion: Indian stocks fell sharply after Brent crossed the $108 mark, amid fears over inflation and global interest rates. Higher crude oil squeezes margins for airlines, paint manufacturers, chemicals, logistics, cement, and consumer companies, as well as lower-tier oil marketers, if retail prices remain controlled. It can also delay revenue recovery, increase bond yields, weaken the rupee, and trigger capital outflows from abroad—which lowers valuation multiples.'
Which companies might benefit?
Oil exploration companies, such as ONGC and Oil India, may benefit from rising crude oil prices, as higher oil sales revenues can boost their revenue and profitability. However, the situation for refining companies is more complex. Refiners may benefit if the spread between the crude oil price and the price of refined petroleum products—the so-called refining margin or 'crack product'—is favorable.
For exploration companies, rising crude oil prices are a positive factor. For refiners and fuel retailers, the impact depends on the margin, product prices, and how much of the increased costs they can pass on. Sharma added: 'Selective producers like ONGC and Oil India benefit from higher revenues; refiners can only benefit if the 'crack product' and pricing freedom compensate for price pressure. Long-term interest may be attracted by renewable energy, electric mobility, and domestic gas themes.'
What about the rupee?
Since oil is India's largest imported commodity, sustained rises in crude oil prices mean that Indian companies and the country as a whole will require more dollars to pay for imports. This can put pressure on the rupee. A weaker rupee, in turn, can make other imported goods more expensive, creating another channel for inflation to penetrate the economy.
Can foreign investors pull out money?
Potentially, yes. A prolonged oil shock could cause investors to become more cautious about emerging markets like India. If investors anticipate rising inflation, higher interest rates, declining corporate earnings, and a weakening rupee, they may reduce their stake in Indian stocks. This could lead to portfolio outflows from abroad and exert additional downward pressure on stock valuations. Nevertheless, this does not mean that any rise in crude oil prices automatically triggers a sustained market sell-off. The duration of the oil shock and the overall global risk environment are crucial.
Sharma concluded: '$108 is not automatically a macroeconomic crisis. India has relatively low inflation, a CAD of 0.8% of GDP in the first half of FY26, and significant foreign exchange reserves that serve as a buffer. However, if oil remains above $100 for several months or if maritime transport through West Asia is disrupted, the trade-off between growth and inflation will significantly worsen.'