India's reliance on energy imports a key concern as geopolitical risks could trigger price shocks: CLSA

For FY25 until October, India's net oil and gas imports clocked in at $79.3 billion, higher by 15 percent.

Hong-Kong based CLSA made the headlines recently, after the global financial services major announced it was reversing its tactical allocation from China back to India. However, as the brokerage restores its India weightage to the previous 20 percent overweight level, it flags a key risk: India's sensitivity to energy prices.

India remains sensitive to energy prices, with 86 percent of the country’s oil consumption being imported, along with 49 percent of natural gas and 35 percent of its coal needs. "We remain concerned about the potential for risk premium in the oil price or at worst, a substantive supply interruption from Iran-Israel tensions," said CLSA's Alex Redman in a report.

A small factor that partially mitigates this risk is the ten percent discount that is applied to around 40 percent of all oil imports that are sourced from Russia.

"Currently, about 40% of India’s oil imports come from Russia, and while there’s still a discount, the Urals versus Dubai crude discount has dropped significantly," Redman said during a media meet on the sidelines of CLSA's India Forum.

While the discounts, he says provide some cushion, India's inability to replace its energy needs domestically means the market remains vulnerable to global price shifts.

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The high level of energy imports impacts the country's current account deficit and thus, currency levels. However, CLSA noted that the RBI has managed to accumulate a "veritable war chest" of forex reserves of around $700 billion, which the central bank deploys in defence of the rupee.

"That is a realistic prospect given that India’s basic balance of payments funding gap which has a helpful coincident fit against nominal USDINR momentum, is currently close to 1 percent of GDP surplus—a level which has historically been associated with rupee stability versus the US dollar," added the CLSA report.

For FY25 until October, India's net oil and gas imports clocked in at $79.3 billion, higher by 15 percent compared to $69.2 billion recorded during the same time in the year-ago period, according to provisional data from the Petroleum Planning & Analysis Cell (PPAC) of the oil ministry.

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