Global oil prices surged after the drone attacks on Saudi oil facilities. It has impacted around 5.7 mmbd of current crude production, and it may take a few weeks (at the very least) to restore the facilities and bring the production back to pre-strike levels. Suspension of operations at the facilities would affect the global oil supply and further spike up prices.
Saudi Arabia is the second-largest supplier of oil to India. India imports around 87% of its total crude oil needs, and higher crude prices will push up trade deficit and current account deficit as the quantity of crude imports is sticky. India has spent $114 billion on oil imports in FY19, up 31% from $87 billion in FY18. Domestic crude production has dropped from 38 million tonnes in FY12 to 34.2 million tonnes in FY19.
Any further escalation of geopolitical tensions in West Asia will keep oil prices boiling and impact the fiscal balance of the Indian economy. As India remains vulnerable to global oil price shocks, it must augment its strategic reserves, diversify sources of crude oil imports and invest in alternative sources of energy. The country also needs to encourage foreign players to invest in domestic oil exploration and production for energy security.