Saudi Arabia cuts oil selling price for Asian nations, India likely to benefit

New Delhi, July 7: Saudi Arabia has decided to cut its official selling price (OSP) for crude oil sold to Asian buyers, a move that is expected to provide short-term relief to India by lowering import costs and easing inflationary pressures.

The move is likely to reduce India’s oil import bill, support the rupee and lower costs for fuel-intensive industries amid continuing volatility in global energy markets.

The price cut comes amid expectations of slowing global demand and rising supplies from major oil-producing countries.

Crude oil remains one of the largest components of India’s import basket.

According to government data, petroleum imports account for nearly one-fourth of the country’s total import bill.

A decline in oil prices is expected to narrow the current account deficit, ease pressure on wholesale and retail inflation, and create additional fiscal space for the government.

Every USD 10-per-barrel decline in crude oil prices can reduce India’s annual import bill by USD 13-15 billion, while lowering consumer inflation by around 30-40 basis points over time.

Lower fuel costs are also expected to benefit energy-intensive sectors such as aviation, logistics, paints, chemicals, cement and manufacturing, where fuel is a major operating expense.

Soumya Kanti Ghosh, Group Chief Economic Adviser at State Bank of India (SBI), has said that lower crude oil prices provide relief to India’s inflation and current account deficit.

However, he noted that the rupee’s direction is increasingly being influenced by foreign capital flows, the strength of the US dollar and broader global financial market conditions.

Caution

While cheaper Saudi crude is positive for India’s economy, analysts caution that the benefits may not be fully realised if the rupee continues to weaken against the US dollar.

Since crude oil is traded in dollars, a depreciating rupee can offset part of the savings from lower oil prices by increasing the landed cost of imports.

The Indian rupee has remained under pressure in recent months due to foreign portfolio investment (FPI) outflows, a stronger US dollar and heightened global financial uncertainty.

Even so, lower crude prices are expected to support domestic demand by easing inflationary pressures and reducing operating costs for businesses.

If global oil prices remain subdued over the coming months, sectors such as airlines, logistics, FMCG and manufacturing could witness margin expansion, providing a broader boost to India’s economic growth despite continued volatility in global financial markets. (BVI)