CHENNAI: Crude oil prices rose sharply in the second day amid escalating US-Iran tensions, increasing concerns for India’s trade deficit and inflation outlook, which remains sensitive to energy imports.
The crude prices experienced a surge of ₹57 to ₹5,788 per barrel in futures trading on Thursday, as traders increased their positions due to strong demand in the physical market. On the Multi Commodity Exchange (MCX), crude oil for July delivery was up ₹57, or 0.99%, trading at ₹5,788 per barrel across 11,222 contracts.
Key developments contributing to the price increase include US military movements, diplomatic tensions and market volatility.
The US initiated a partial evacuation of its embassy in Iraq and authorized voluntary departures from Bahrain and Kuwait due to heightened security concerns.
President Donald Trump expressed diminished confidence in reaching a nuclear deal with Iran, emphasizing that Iran must not acquire nuclear weapons. Intelligence reports suggest Israel may be preparing for a potential strike on Iran’s nuclear facilities, further escalating unrest .
These developments have caused significant volatility in energy markets, with analysts noting that the oil price rally might be an overreaction but still reflects the market's anxiety .
Impact on India
India, as the world's third-largest importer and consumer of crude oil, is particularly sensitive to fluctuations in global oil prices. The recent rise in oil prices poses several challenges:
India's merchandise trade deficit widened to $21.54 billion in March 2025, up from $15.6 billion in the same period last year. Imports surged by 11.4% annually to $63.51 billion, despite the relatively low price of fuel that makes up a large portion of India's foreign purchases .
The rise in oil prices has led to a significant increase in India's oil import bill. The Petroleum Planning and Analysis Cell (PPAC) data shows that India's crude oil imports rose 4.2% annually to 242.4 million tonnes (MT) in FY25, up from 232.7 MT in FY24, while import dependency edged up to 88.2% from 87.8% during the same period .
Higher oil prices contribute to inflationary pressures, impacting the Consumer Price Index (CPI). Analysts estimate that every $10 rise in crude oil prices widens India's current account deficit by 0.55% and pushes up the CPI by 0.3%, as oil constitutes a major share of the country’s import bill
Market Outlook
According to sector analysts the current geopolitical tensions and rising oil prices have introduced significant volatility into the global oil market. While OPEC's spare production capacity and the fact that global crude supplies have yet to be disrupted by the Middle East unrest provide some cushion, the situation remains fluid. Analysts caution that the oil price rally might be an overreaction but still reflects the market's anxiety.