Crude Oil Impact: Most of the countries in Asia are dependent on imported oil for their energy needs, so expensive oil can become a big challenge for the economies of the region…
highlights
- After the increasing tension in West Asia and military action on Iran, there is a sharp rise in the prices of crude oil.
- Most countries in Asia depend on imported oil for their energy needs.
- In such a situation, expensive oil can become a big challenge for the economies of the region.
Oil Price Impact India: The increasing tension between America and Iran in West Asia has sent crude oil prices soaring. Brent crude has reached around $73 per barrel and WTI around $67. Brokerage and commodity experts believe that if this conflict continues for a long time, the price of oil may go up to 90 to 100 dollars per barrel. This can prove to be a big blow to an oil import dependent economy like India. India imports about 85–90 percent of its crude oil requirement from abroad. In such a situation, the cost of oil has a direct impact on the country’s import bill, inflation and rupee.
Most countries in Asia depend on imported oil for their energy needs, so expensive oil can become a big challenge for the economies of the region. Rising import bill, current account deficit pressure, potential inflation and increasing subsidy burden on governments – all these factors will determine the direction of Asian markets in the coming months. However, government intervention and cautious monetary policies may limit the shock.
Crude Oil: How much impact on which sector?
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Crude oil is a very important raw material for many industries along with paint. From paint to chemical and from aviation to FMCG, there is no sector where fluctuations in crude oil prices are not affected. When oil is expensive, companies’ costs increase and profits (margins) come under pressure. Due to this concern, investors sold many sectors in the Indian market on Monday, March 2.
Talking about the stock market, the initial reaction may be negative. Foreign investors may increase selling and market fluctuations may increase.
Sectors like auto, aviation, FMCG and cement may come under pressure as they are directly affected by fuel cost. At the same time, investor interest in oil producing companies and defense sector may increase. Gold can also become the center of attraction as a safe investment.
Double hit on paint companies
The positive environment created for the paints sector after the September quarter due to signs of improvement in volume growth, less competition and less discounting did not last long. Given higher competition and lower demand in the decoratives segment, the sector lagged in the consumer discretionary space in the third quarter of the fiscal year 2025-2026 (FY26).
International oil prices also added to the troubles, reaching their highest level in six months and could rise further in view of the US and Israel’s military action against Iran over the weekend. Stocks in this sector have performed poorly compared to their fast-moving consumer goods (FMCG) competitors and benchmark indices.
Last month, the average return of top listed paint companies was negative by 7.4 percent, while the return of Nifty FMCG was negative by 0.4 percent and the return of Nifty50 was flat.
Centrum Research has said in a report that the commentary of paint companies has changed from a positive outlook in Q2 to cautious expectations in Q3. Domestic decorative coatings were impacted due to prolonged monsoon and shorter festival season as Diwali arrived early in the quarter. Kansai Nerolac witnessed flat to marginally negative volume growth in the segment, while Asian Paints and Berger Paints witnessed high single digit volume growth.
Apart from price pressure, increase in crude oil prices will also impact the margins of paint companies. Products like titanium dioxide and binders/resins derived from crude oil account for more than 60 per cent of the raw material cost and a sudden rise in oil prices may force companies to raise prices or suffer losses in margins.
loss sectors
- auto
- FMCG
- aviation
- chemical
- cement
- Oil Marketing Companies
they will benefit
- Oil Producer Companies
- defense companies
- Gold ETF
Why are oil prices increasing?
In the beginning of January, Brent crude was around $ 60 per barrel. Now after the outbreak of Iran-America-Israel war, it has increased to around $ 73 per barrel. There is a possibility that it may increase further by 9% soon.
If Iran’s oil exports are affected or there is blockage in the Strait of Hormuz, prices could rise further.
Fixed trade in crude oil: What will be the impact on India?
According to experts, if the price of crude oil increases by $ 10 per barrel, then India’s annual import bill may increase by about Rs 10,000 to 15,000 crore. This will increase the current account deficit. Rupee may weaken due to increase in demand for dollar and inflation will come under pressure due to costlier petrol and diesel.
If transport becomes expensive, prices of everyday goods may also increase. Besides, the fiscal deficit of the government may also be affected.
The prices of petrol and diesel in India are not directly linked to the market. Government oil companies (OMCs) bear some of the shock themselves, while the rest is compensated by the government.
When oil becomes expensive by 10%-
- GDP growth of a country like India may reduce by 0.1%
- Inflation may increase by 0.1% (limited impact)
Why is oil so important for India?
- India is the world’s third largest oil importer.
- We import 85-90% of our crude oil requirement from abroad.
- India imported crude oil worth about ₹11.6 lakh crore in FY25.
- If oil becomes expensive, it will directly affect our pockets and the government budget.
What will happen if oil becomes expensive by $10?
According to economists, every $10 per barrel increase could increase India’s import bill by Rs 10,000–15,000 crore annually.
What can happen next?
- import bill will increase
- More dollars will be spent, which will increase the current account deficit (CAD).
- Rupee may weaken
- Demand for more dollars will put pressure on the rupee.
Can inflation increase in India?
- If crude oil becomes more expensive, the possibility of petrol and diesel becoming expensive increases.
- The result of this will be that transport will become expensive, due to which goods in the country will also become expensive.
- Pressure on the government may increase.
- Subsidies and fiscal deficit may increase.
- On average, for every 10% increase in oil prices, headline inflation may increase by 0.2%.
- In many Asian countries the government controls the prices of petrol and diesel.
- Therefore, the impact of inflation may remain limited.
- Countries like India and Thailand use subsidies or price control methods. In such a situation, inflation will not increase suddenly in these countries.
Most affected countries in Asia
- Thailand
- India
- south korea
- philippines
Now these countries will have to spend more on oil imports.
What is the impact of expensive oil on the world?
Expensive oil increases the costs of companies. Affects people’s pockets and increases uncertainty in the market. The burden on governments will increase. Every 10% oil increase may impose an additional burden of 0.1-0.2% GDP on governments. Countries like India, Indonesia and Thailand may come under more pressure.
Where is the big risk?
- There is more danger from FII capital outflow than from current account.
- If foreign investment comes out and oil also becomes expensive then the rupee may weaken.
- If oil remains expensive for a long time, it will be negative for all Asian markets including India.
- If stress ends quickly, decline may be temporary
What will happen in the stock market?
- There may be a decline in the stock market in the beginning
- Foreign investors (FIIs) may increase selling
- There may be pressure on rupee and bond yields
What should investors do?
- Don’t panic and trade
- Wait for the market to stabilize
- Reduce exposure to high risk stocks
- Keep an eye on oil price, dollar-rupee and FII flow
Note important things
US-Iran tensions are not just a regional issue. This can have a direct impact on India’s economy and stock market. If oil remains expensive for a long time, there will be pressure on inflation, rupee and markets. The direction of the market in the coming days will largely depend on how long this conflict continues and how much oil supply is affected.
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