Why surging Indian crude basket prices raise red flags

Fresh tensions have erupted in the Middle East, with Iran attacking 10 ships near the Strait of Hormuz after the US said it had bombed five Iranian crude vessels in the Gulf of Oman and near Kharg Island. The US attack came after Iranian forces had allegedly launched ballistic missiles at a US warship.

The renewed attacks have once again caused panic in the global crude oil market, with Brent crude oil, which tracks paper trades in London or New York, rising above the $100 a barrel mark. The Indian crude basket, reflecting the actual landed or procured price (including spot premiums and regional shipping costs) paid by Indian state refiners, too has soared beyond $100 a barrel. On September 10, it stood at $116 a barrel, as per data shared by the Petroleum Planning & Analysis Cell under the Union Ministry of Petroleum and Natural Gas.

This has serious repercussions on India, which imports nearly 88 per cent of its crude oil. India imported around $134.7 billion worth of crude petroleum in FY26. Prolonged high prices will widen India’s current account deficit and worsen an already rising inflation. Higher cost of fuel puts oil marketing companies under financial pressure, leading to increased subsidies from the government, which upsets fiscal management.

The Indian crude basket serves as a key benchmark for the country’s energy import costs. It is derived from a combination of high-sulphur sour crude (the average of Oman and Dubai grades) and low-sulphur sweet crude (Brent Dated). The basket is traditionally structured around a ratio reflecting what Indian refineries process—roughly 78.7 per cent sour grade and 21.3 per cent sweet grade.

Meanwhile, Brent crude traded at $105.6 a barrel on September 10 while WTI crude, which serves as a benchmark for the US oil market, was at $100.

“The renewed hostilities between Iran and US pose a challenge for the limited crude oil supplies coming through the Strait of Hormuz,” said Prashant Vasisht, senior vice-president and co-group head, corporate ratings, ICRA. “Further, as Iran threatens to establish a new restricted maritime zone extending beyond the Strait of Hormuz, additional energy flows beyond the latter could be at risk.”

Following these developments, crude oil prices have increased in the past few days, and the Indian crude basket has crossed the $100/barrel mark, he said. “As a result of the surge in crude prices, marketing margins on auto fuels are likely to turn negative and domestic LPG under-recoveries could increase from the current nearly Rs 200 per cylinder,” Vasisht added.

Under-recoveries are the financial shortfalls that state-run fuel retailers experience when forced to sell products such as domestic LPG and diesel below their actual import-parity cost. They are later compensated by the government in the form of cash assistance or subsidies or, to a limited extent, by adjusting retail fuel prices.

In July, India’s crude oil imports from Russia comprised more than half of the country’s total oil imports. The July imports of Russian oil were up 62.4 per cent from a year earlier but down 4.8 per cent from June 2026’s record figure of 2.6 million barrels per day.

India has been heavily leaning towards Russia for crude oil imports after the West Asia war led to a standstill in traffic at the Strait of Hormuz. Around 54 per cent of India’s gas imports and 45 per cent of oil imports had flowed through the Strait of Hormuz in FY25.