As global crude oil prices plunge, the question that’s being asked in India and around the world is whether this is a silver lining or a dark cloud? That’s because US President Donald Trump’s tariff announcements have dampened sentiment and heightened fears of an impending global recession.
For India, falling crude oil prices are typically a reason to cheer when it’s business as usual. After all, India is the third-largest importer of crude oil after China and the US and a fall not only lowers its import bill, but also reduces inflation and the fiscal deficit, cuts the subsidy bill, makes exports more competitive and boosts overall economic growth. For consumers, it means that their fuel bills could possibly go down with a cut in retail prices.
But since the Indian economy is closely intertwined with global developments, can falling oil prices also become a liability?
In the four months since Trump took over as the US President, business has been very far from usual. Almost daily announcements and reversals by the US on trade and tariff levies on countries across the globe have dampened sentiment, with equity, bond and currency markets on a roller-coaster ride, reflecting the volatility in the global economy. There are concerns that the tariff hikes could lead to lower demand for goods in the US and trigger an economic slowdown if not a full-fledged recession that would also affect economies across the world.
Global crude oil prices, too, have mirrored this uncertain outlook and have fallen in recent weeks to touch a four-year low after Trump’s “reciprocal” tariff announcement on April 2. Some believe that crude oil prices could fall further in the coming weeks because of the trade war. Brent crude dipped below $65 per barrel on April 4 and the West Texas Intermediate (WTI) has inched down to $61 on April 10 before recovering.
Goldman Sachs expects Brent and WTI prices to edge down and average around $63 and $59, respectively, for the remainder of 2025, and $58 and $55 in 2026. Its base case assumes that the US will avoid a recession, and the OPEC+ bloc’s supply will rise only modestly. However, it has warned that a global slowdown or a full reversal of the 2.2 million barrels per day of voluntary cuts by OPEC+ would likely push Brent towards $40 in 2026 and below that in an extreme scenario.
With the expectation of demand moderation, OPEC, in April, has cut its forecast for global oil demand for this year and the next by about 150,000 barrels a day. This year, it expects global oil demand to grow by 1.3 million barrels per day to 105.05 million barrels per day. Similarly, in 2026, it expects global oil demand to grow another 1.3 million barrels per day to 106.3 million barrels per day.
Reflecting the global dip, the price of the Indian basket of crude has fallen below $70 per barrel, the first such instance since August 2021. This April, India’s average crude oil import price has been near $69, which is almost 22% lower than $89.44 in April 2024.
This is definitely good news for India, which imports nearly 89% of its crude oil requirements. Crude petroleum and products remain the country’s top import item. In FY25, India imported crude petroleum and products worth $185.78 billion, up nearly 4% year-on-year (YoY), indicating the growing demand for fuel.
The Reserve Bank of India (RBI), too, has pointed out that the fall in crude prices augurs well for the inflation outlook. It has lowered its FY26 consumer price index (CPI)-based inflation rate forecast to 4% from 4.2%.
The Monetary Policy Report of the RBI in April has also reduced the baseline assumption for crude price (Indian basket) to $70 per barrel in 2025-26 from $80 per barrel in the second half of 2024-25 that it had projected in October 2024.
“Global crude oil prices have exhibited a declining trend with Brent crude falling from a high of $82 per barrel in early-October 2024 to an average of $73 per barrel in March 2025. Weak global demand conditions, sustained supply increase from OPEC+ and non-OPEC countries and orderly resolution of geopolitical conflicts will have a potential dampening impact on crude oil prices,” the report pointed.
The report noted that if crude prices drop by 10% against the baseline, and if this is fully passed through to domestic prices, inflation could be lower by about 30 bps with a boost of 15 bps to India’s real GDP growth. In contrast, recovery in global demand, and restriction in oil supplies due to continuing geopolitical tensions may put upward pressure on prices. “In a scenario where crude prices are higher by 10% than the baseline assumption, domestic inflation may turn out to be higher by 30 bps and growth may be weaker by around 15 bps,” it said.
D.K. Srivastava, Chief Policy Advisor at professional services firm EY India, agrees and points out that the contribution of net exports to India’s GDP remains small. Thus, low global crude oil prices will benefit India’s economic growth and also help bring down inflation and the subsidy bill.
“In case there is a further fall in global crude oil prices due to a global slowdown, the adverse impact on India’s growth would be limited. We will continue to benefit from low oil prices,” he says. He adds that the government is already working on ways of using this opportunity to shore up its tax collections.
On April 7, the government raised excise duty on petrol and diesel by `2 per litre. The impact will be absorbed by oil marketing companies with no hit to consumers. The Centre, however, will be able to raise about `32,000 crore in excise duty. The next round of benefits could probably be passed on to consumers. This was hinted at by Petroleum Minister Hardeep Puri who said oil companies may have headroom to lower retail prices when their inventory cost is in the $60-65 per barrel range.
The last round of cuts took place in March 2024, when OMCs reduced the retail prices of petrol and diesel by `2 per litre each.
However, energy expert Narendra Taneja points out that petroleum products remain a significant source of revenue for the Centre and states with nearly 50% of the retail price going to the exchequer as taxes. “How far the Centre and the states are willing to cut retail prices is to be seen,” he notes.
To be sure, the petroleum sector is a significant contributor to the exchequer and provided `7.51 lakh crore as revenue to the overall kitty of the Centre and states in FY24 and `3.39 lakh crore in the first six months of FY25.
Taneja also cautions that too steep a fall in crude oil prices is not always advantageous. “In the short run, it is certainly good news for India as it helps bring down the import bill. But if oil prices fall along with a global slowdown, it is not always good news as our economy is integrated with the global economy,” he notes.
Taneja points out that if global crude oil prices fall below $60 a barrel, then production becomes unviable for many producers, especially those producing in deep and ultra deep water. “Countries like Iraq, Russia and Saudi Arabia can still deal with low prices below $60 per barrel thanks to their on-land oil fields, but most other producers like Norway and Angola cannot,” he says.
There are fresh global developments every day as the US tinkers with its trade and tariff policies. For now, it has imposed a 90-day pause on “reciprocal” tariffs and India is amongst several countries looking to offset that by signing a trade deal with the US. The trajectory of global crude oil prices will depend to a large extent on geopolitical developments. In recent years, prices have proved to be remarkably resilient and have managed to absorb the shocks from the still ongoing wars in the Middle East and Russia and Ukraine.
It’s still early days and the anxiety, if at all, may set in only later. For now, falling global crude oil prices remain a reason to celebrate in India.
@surabhi_prasad
