What does the oil shock mean for the economy?
The ongoing US-Israel conflict with Iran has caused a surge in crude oil prices, affecting India's macroeconomic position and leading to a higher import bill. The country's external account is under pressure, with a monthly deficit of $27.1 billion in February, and the rupee has been exploring new lows, increasing the domestic cost of imported oil.
India's crude oil imports have been affected by the US-Israel conflict with Iran, causing a surge in prices. The country imports 90% of its crude oil, mostly from the Middle East, and the price increase has led to a higher import bill. The external account is under pressure, with a monthly deficit of $27.1 billion in February. The rupee has been weakening, increasing the domestic cost of imported oil. The RBI faces a tough choice between tightening policy and risking a resurgence of inflation. India has some defences, including services exports and foreign exchange reserves, which give policymakers room to act calmly.
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