At the same time, Indian crude oil imports are set to rise: last financial year, the country imported 220.43 million tons of crude, with the bill coming in at US$87.7 billion This financial year, imports are estimated to reach 227 million tons while international oil benchmarks and the U.S. dollar rise higher and the rupee falls.
The FY 2018/19 oil import bill was at the start of the year estimated at US$108 billion on the basis of an average benchmark oil price of US$65 and an exchange rate of 65 rupees per dollar. However, oil has been trending higher than this for much of the year so far and supply concerns resulting from the U.S. sanctions against Iran and worry about spare production capacity among OPEC members are likely to keep it higher than US$65 until the end of the year at least.
On top of higher benchmark prices, if the rupee remains around US$70 per U.S. dollar, the oil import bill could swell to US$114 billion. This would in turn pressure India's economy further: the currency depreciation followed the latest trade deficit reading, which revealed India's imports exceeded its exports by US$18 billion. This is the highest trade deficit since 2013.
Earlier this year, India called on OPEC to take action and bring oil prices down, or risk a demand crunch. OPEC obliged, agreeing with Russia in June to boost combined production by 1 million barrels daily. However, the agreement and the subsequent increase in Russia's and some OPEC members' production failed to have a substantial effect on prices, as Saudi Arabia surprisingly produced 200,000 bpd less in July and a round of U.S. sanctions against Iran came into effect.
Comment: Currency instability also recently struck Russia and Turkey. But while Russia seems to be more than capable of riding it out, Turkey is struggling. As for India, at least in this instance, an alternative to trading oil in dollars could be seriously advantageous: