Oil Price Impact India 2026: CAD at 2.2–2.3%, Rupee at 95, GDP at 6.6%

1. Crude Oil Price: From Peak to Present

As of June 10, 2026, Brent crude was trading at $91.72 per barrel, after a sharp decline from recent highs, while US benchmark West Texas Intermediate (WTI) hovered around $88 per barrel. The weakness followed fresh data signalling weakening demand from China, the world’s largest oil importer, which saw crude imports fall to around 7.8 million barrels per day last month—the lowest level in more than eight years. This retreat comes after a turbulent period: on June 8, Brent crude surged 3.81% to $96.64 per barrel, and WTI climbed 4.32% to $94.45 following fresh Israeli strikes on Iran and Lebanon, pushing markets to two-month lows. Earlier in June, crude oil futures on the Multi Commodity Exchange (MCX) hit a record high of ₹9,260 per barrel amid escalating tensions in West Asia. The Indian basket of crude oil averaged around $110 per barrel during April and May 2026, substantially above assumptions used in the RBI’s previous policy review.

2. Current Account Deficit: Widening to 2.2–2.3% of GDP

India’s current account deficit (CAD) is set to widen sharply in FY27 due to higher import bills for crude oil, natural gas and fertilisers. HSBC estimates CAD will reach 2.3% of GDP in FY27, up from 0.9% in FY26, assuming crude prices average $95 a barrel. Montek Singh Ahluwalia, former Deputy Chairman of the Planning Commission, warned at the ABP India@2047 Conclave that the West Asia crisis is likely to push the CAD up to around 2.2% of GDP, while the capital account surplus falls from about 2% to nearly zero as high US interest rates pull global capital back to America. Every $10 per barrel increase in oil prices can worsen the annual CAD by nearly $15 billion, according to a report by Union Bank of India. The balance of payments (BoP) deficit is estimated to widen to $65 billion in FY27 from $35 billion in FY26.

3. Rupee at 95: RBI’s Multi-Pronged Defence

The rupee has remained under severe pressure, weakening to a record low of 96.97 per dollar on May 20 before recovering on aggressive RBI intervention. On June 5, 2026, the RBI kept the repo rate unchanged at 5.25% while unveiling a series of measures to attract dollar inflows: expanding the Fully Accessible Route (FAR) for government securities, providing concessional forex swaps for overseas borrowings, and covering full hedging costs for FCNR(B) deposits until September 30, 2026. Following these announcements, the rupee posted its biggest single-day gain in two months, appreciating by 85 paise to close at 94.94 per dollar, making it Asia’s best-performing currency on the day. On June 10, the rupee appreciated 14 paise to close at 95.27 against the US dollar amid likely RBI intervention. Most analysts expect the rupee to trade in a range of 94–96 against the dollar in the near term, with a sharp appreciation remaining unlikely amid persistent geopolitical uncertainty.

4. ₹1.23 Lakh Crore OMC Support & Fertiliser Subsidy Surge

The Centre provided nearly ₹1.23 lakh crore in support to state-run oil marketing companies (OMCs) to keep fuel prices frozen for 78 days after the West Asia crisis pushed up global crude prices, according to reports from June 10, 2026. The government cut excise duty on petrol and diesel by ₹10 per litre on March 27, and OMCs raised retail prices four times between May 15 and May 25, adding ₹7.50–8 per litre to pump prices. In Delhi, petrol rose from ₹94.77 to ₹102.12 per litre, while diesel increased from ₹87.67 to ₹95.20. Despite these hikes, OMCs were still incurring daily losses of ₹650 crore as of June 10. Before the price hikes, daily under-recoveries had climbed to an unprecedented ₹1,000 crore per day, with quarterly losses reaching ₹1 lakh crore. Following the four revisions, daily under-recoveries fell to below ₹600 crore by May 2026. Meanwhile, the Ministry of Chemicals and Fertilisers has sought about ₹3.4 lakh crore in fertiliser subsidy allocation—nearly double the budget estimate of ₹1.71 lakh crore—as global fertiliser prices have soared.

5. Inflation Outlook: RBI Raises Forecast to 5.1%

At its June 5, 2026 bi-monthly monetary policy review, the RBI MPC unanimously voted to keep the repo rate unchanged at 5.25% with a “neutral” stance. However, the central bank raised India’s CPI inflation projection for FY27 to 5.1% from 4.6% earlier, citing elevated crude oil prices and global uncertainties. Inflation is expected to peak at 5.9% in the third quarter before easing slightly. Core inflation is projected at 4.7%. The RBI highlighted that the Indian basket of crude oil averaged around $110 per barrel during April and May 2026, substantially above assumptions used in the previous policy review. The central bank identified a sub-normal south-west monsoon forecast and possible El Niño conditions as additional risks to food production and rural demand. Oil Minister Hardeep Singh Puri said he expects oil prices to drop in the coming months, with enough stocks available despite the US-Israeli war with Iran that has squeezed energy supplies.

6. GDP Growth: RBI Cuts Forecast to 6.6%

The RBI lowered its FY27 real GDP growth forecast to 6.6% from 6.9% projected earlier, citing elevated crude oil prices, supply disruptions linked to geopolitical tensions, and weaker monsoon prospects. For the full fiscal year ending March 2026, GDP growth stood at 7.7%, up from 6.5% the previous year, with Q4 FY26 growth coming in at a better-than-expected 7.8%. However, economists caution that the full impact of the disruption has yet to be felt. A Business Standard poll of 10 economists projects GDP growth slowing to 6.5% in FY27 from the 7.7% estimated for FY26, with QuantEco Research projecting growth at 6.2% and IDFC First Bank at 6.8%. Assuming average crude prices of $95 a barrel, ICRA projects GDP growth to moderate to below 6.5% in FY27, with higher energy costs expected to weigh on corporate profitability, dampen investment sentiment and erode consumer purchasing power. Fitch has cut India’s FY27 growth forecast to 6.4% as the US-Iran war fuels oil shock and inflation risks.

7. Fuel Consumption Drops 6.5% in May—Warning Sign for Economy

India’s demand for transportation fuels and petroleum products is declining due to supply disruptions and higher prices stemming from the Iran war. Total consumption of refined products fell 6.5% in May from a year earlier, to 19.93 million metric tonnes, according to oil ministry data. Petrol was up only 3.3% and diesel grew just 1.5%, around half the average growth recorded for the two fuels in FY26. Aviation turbine fuel (ATF) was flat, while sales of other products such as naphtha (29%), LPG (20.5%), bitumen (39.4%) and petcoke (11.3%) fell sharply. Slowing fuel consumption is an indicator of weakening economic activity. The near closure of the Strait of Hormuz and import curbs are at the heart of the slowdown in fuel consumption.

8. Russian Oil Imports: Share Rises Despite Narrowing Discounts

Russia’s share of India’s crude import bill rose to 37.7% in April 2026, the highest level in 11 months, up from 21.4% in January. India imported Russian crude worth $5.79 billion in April 2026, up from $3.25 billion in March. However, the deep discounts that initially attracted Indian refiners have narrowed. Russia increased discounts on Urals crude to around $9 per barrel to ICE Brent in May 2026 to encourage Indian purchases despite India’s trade agreement with the US.

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