Greasing The Wheel

India has never solved its oil problem. It has only managed it better each time. Import dependency hit a record 88.2% in FY25, and the crude bill was $137 billion before this crisis. Then the Hormuz closure of February 28, 2026 cut the route that carried about 45% of India's crude imports, PIB says, and Brent rose more than 66% (from $71 on February 27 to $118 on March 18) per barrel in under 3 weeks.

How long the strait stays shut is something nobody can model. This piece lays out the transmission chain: how a barrel priced in the Persian Gulf ends up tying the RBI's hands, widening the fiscal deficit, weakening the rupee and raising the discount rate on every growth story in the Nifty.

The 5 Channels

The usual story, "costs rise, inflation follows, RBI tightens", is 1 channel out of 5. In the order they happen:

Imports: the bill widens first. India imports about 4.87 million barrels per day. At that volume, every $10 per barrel increase adds about $18 billion to the annual crude bill, using PPAC's FY25 import data. A $40 per barrel rise above the pre-shock $70 baseline means about $71 billion in additional annual spending on oil, before anyone buys less.

The rupee: oil is paid for in dollars, so a bigger bill means more rupees chasing dollars. The RBI has been stepping in, running reserves down from $728.49 billion on February 27 to $709.76 billion by March 13, a $18.7 billion drop in 2 weeks. That slows the fall but cannot stop it: the rupee is already past ₹93 per dollar.

Inflation: it follows, but filtered. The correlation between crude import prices and India's CPI over FY23, FY25 is about 0.30, a moderate link, not a mechanical one. 3 things soften the blow: administered fuel pricing, food's 45.9% weight in the CPI basket, which can mask fuel costs, and the managed rupee. The RBI's February 2026 projection of 4.0% for Q1 FY27 and 4.2% for Q2 FY27 came before Hormuz, so it is now a floor: the real number is almost certainly above 4.2%.

The fiscal deficit: the government keeps LPG and fertiliser affordable, so it pays the difference when crude rises. The fertiliser subsidy alone is set to cost ₹19,230 crore more than budgeted in FY26. At the same time it is pressed to cut excise duty on petrol and diesel, and every ₹2 per litre cut costs about ₹33,400 crore in revenue a year. So it borrows more than planned.