DNA Money Edit: Spurt in crude prices bad news for India

Oil prices rose to a fresh high on Thursday since 2015 with Brent crude climbing above $68 a barrel amid geopolitical tensions in Iran. The brewing troubles in the Organisation of the Petroleum Exporting Countries's (Opec) third-largest producer have, however, not hit the country's oil output so far.

But prices look to move North amid fears that the Trump administration in the US would not certify the nuclear deal with Iran, ahead of a looming January 13 deadline. Also, the US has yet to decide whether to continue to waive nuclear sanctions on which the precarious deal rests.

The spurt in oil prices is definitely not good news for India, which imports over 80% of its crude requirements. Any rise in crude heightens inflation concerns as diesel and petrol have a combined weight of about 2.3% in the consumer price index inflation basket.

It also means a deteriorating current account deficit (CAD). International brokerage UBS suggested that a $10 per barrel increase pushes CAD by $8 billion and fuel oil subsidy by about $2 billion. A 10% rise in crude prices could increase CPI inflation by around 25 basis points if oil marketing companies were to pass on the full increase to consumers and if there is no excise duty cut.