Prolonged Ukraine crisis, high crude prices may push India's import bill up by 15%: Experts

The genesis of the crisis is Russia`s status as the world`s second-largest oil producer, which mainly sells crude to European refineries and is the largest supplier of natural gas to Europe, providing about 35 per cent of its supply. 

It is a crude shock with many implications for the world and India. The surge in Brent oil to USD 105 a barrel for the first time since 2014 driven by the escalation of the Ukraine crisis has triggered fears of a disruption to the region`s critical energy exports with consequences for India.

The genesis of the crisis is Russia`s status as the world`s second-largest oil producer, which mainly sells crude to European refineries and is the largest supplier of natural gas to Europe, providing about 35 per cent of its supply. The Brent touched over USD 96 per barrel on Tuesday as fears rose over supply-side disruptions amidst current shortages of oil stemming from the spike in global demand and low production by OPEC.

The threat of sanctions forcing Russia to supply less crude or natural gas would have substantial implications on oil prices and the global economy. According to Hetal Gandhi, director, CRISIL Research, the conflict between Russia, second-largest exporter of crude oil with 12 per cent market share, and Ukraine has expectedly raised already-elevated crude oil prices to 8-year high and prices could stay over $100 per barrel in the near to medium term unless the OPEC decides to increase output materially.

"Over the past three months, OPEC members haven`t been meeting their production targets, which has influenced prices. The result is energy and trade-deficit negative for India, since we import nearly 85 per cent of our crude oil requirement," said Gandhi. "If crude hovers around the USD 100 a barrel mark, India`s import bill can jump around 15 per cent in the months to come," added Naveen Mathur, director of commodities and currencies, Anand Rathi Shares and Stock Brokers.

Price of oil could go above USD 100 a barrel due to a combination of the Ukraine crisis, cold winter in the US, and a lack of investment in oil and gas supplies around the world, opines Navneet Damani, senior vice president (commodity and currency research) of Motilal Oswal Financial Services. "Russia accounts for one in every 10 barrels of oil consumed globally. Hence it is a major player when it comes to determining the price of oil. An escalation due to the crisis is really going to hurt consumers at the petrol pumps," said Damani.