Lower crude oil prices typically benefit India’s external balances, with every $1 per barrel fall in price reducing the annual import bill by an estimated $1.4-$1.5 billion. However, in late 2025, India’s oil deficit remained wider than expected despite a $12 per barrel decline in average prices. This occurred because lower prices spurred a sharp increase in imported volumes, negating about 55% of the price benefit.
The increase in import volumes was primarily from West Asia and the US rather than Russia. Notably, crude imports from the US in the first half of FY26 almost matched the total annual imports from the previous year, raising the US share of India’s oil imports to 7.5%. Interestingly, this surge in imports did not correlate with domestic fuel consumption, which has actually been slowing.
Economists suggest that while “front-loading” oil imports at lower prices makes sense, volumes are expected to eventually decline as domestic and export demand remains subdued. This correction, combined with falling prices, could help USD inflows, though challenges remain due to soft capital investment and portfolio outflows. Net FDI flows, which peaked at $40 billion five years ago, dropped to just $1 billion last year, posing a long-term challenge for funding the country’s current account.