Indian oil imports to cross $100 billion in FY22

India has for long been importing around 85% of its daily oil needs. Now, with oil prices going through the roof, the oil import is really starting to hurt. For FY22, the oil import bill has already scaled a level of $94.3 billion by the end of January 2022. With 2 more months to go for the current fiscal year, the total oil imports for the full fiscal year FY22 is likely to be closer to $115-$120 billion. That will be more than double the previous year bill.

In the month of Jan-22 alone, India spent nearly $11.6 billion on oil imports with oil prices hovering well above $80/bbl. In February, the Brent Crude prices have been consistently above $90/bbl and now it is inching towards the $100/bbl mark. In contrast, the January 2021 oil import bill was just $7.7 billion. Clearly, higher oil prices are putting a lot of pressure on the trade deficit and the current account deficit for India.

With the latest Ukrainian crisis in full force and the worsening geopolitical situation in the Caucuses, oil is now expected to go higher towards $115/bbl. That would really result in a surge in the oil import bill next year and, perhaps, even in the month of March 2022. India is now expected to close FY22 with a base case oil import bill of around $115 billion and in the case of a spike in oil prices, the import bill could go as high as $120 billion.

However, it is not all outflows for India. A good chunk of the imported crude oil is converted into value-added products like petrol and diesel at oil refineries, before being sold across retail and institutional outlets in India. Since India has surplus refining capacity, it exports some petroleum products. In FY22, the value added exports worked out to $34.1 billion, so nearly one-third of oil imports is resulting in oil product exports, making it currency neutral.

In the ten months to January 2021, India spent $62.2 billion on importing 196.5 million tonnes of crude oil. That was more because oil prices were relative subdued last fiscal due to the lag effect of the pandemic. However, in the first ten months to January 2022, India has already imported 175.9 million tonnes of crude oil but paid $94.8 billion. The eventual quantity imported may only be marginally higher in FY22, but higher prices did the damage.

A better way to compare in a realistic way is to compare with the pre-COVID period FY20. During the full year FY20, India imported a total of 227 million tonnes of crude and paid a sum of $101.4 billion. In short, compared to 2019-20, the oil import quantity will be lower in FY22, but the dollar outflow will be much higher due to a sharp spike in the price of crude. A combination of supply chain bottlenecks, robust demand and geopolitical risk played a part.

The other perspective is that India’s import dependence on crude has increased over time owing to a steady decline in domestic output, especially at the principal Bombay High. Between FY20 and FY21, the total oil produced in India fell from 30.5 million tonnes to 29.1 million tonnes. It is likely to be still lower in FY22 with just about 23.8 million tonnes of crude oil produced in the first 10 months of FY22. India is likely to fall short of targets.

India’s oil self-sufficiency fell from 15.6% in FY21 to 14.9% in FY22. The spike in the oil bill is not just about crude oil but also about liquefied natural gas (LNG), wherein the import bill is up more than 50% yoy at $9.9 billion. Gas imports are also up in the year as per numbers reported by PLNG and GAIL. In short, the crude situation is just about worsening the oil deficit challenges for the Indian economy.