India Oil-Shock Pass-Through
A Leontief cascade view of how a Hormuz-driven crude shock moves through India's current account, currency risk, and downstream sectors.
Executive View
Underweight INR versus USD under a sustained Hormuz-closure scenario. Each $10/bbl move in Brent widens India's current-account deficit by roughly 0.4% of GDP.
Underweight crude-sensitive downstream sectors: fertilisers, synthetic textiles, specialty chemicals, and aviation.
The oil-import bill runs roughly $2-4bn/month above the pre-war baseline when Brent settles in the $90-100/bbl range.
Estimated input-cost increases range from +10% to +24%, depending on direct crude exposure and indirect input-output linkages.
Mechanism
The shock has two transmission channels. The first is macro: higher crude prices raise the import bill, widen the current-account deficit, pressure INR, and increase the cost of external energy dependence. The second is sectoral: crude derivatives such as naphtha and ATF move through downstream production chains, lifting input costs before firms can fully reprice output.
The sector effect is not uniform. Fertilisers and aviation face a direct fuel/feedstock channel. Synthetic textiles and specialty chemicals pick up more of the shock through intermediate petrochemical inputs, so the pass-through is slower and depends more on pricing power.
Method
The sector estimates use a standard price-Leontief pass-through model on the ADB Multi-Region Input-Output table for India. Sector price changes are computed as:
Delta P = (I - A')^-1 * s_crude * Delta p_crude
Here, A is the technical-coefficient matrix, s_crude is each sector's direct crude input share, and Delta p_crude is the Brent shock. The Leontief inverse captures direct and indirect rounds of intermediate-input price propagation. The current-account impact is sized through the oil-import bill and a standard Brent sensitivity.
Sector Pass-Through
| Sector | Direct IO coeff. | Indirect IO effect | Total multiplier | Brent $90/bbl | Brent $100/bbl |
|---|---|---|---|---|---|
| Fertilisers | 0.62 | 0.09 | 1.44 | +16% input cost | +24% input cost |
| Synthetic textiles | 0.48 | 0.08 | 1.38 | +12% input cost | +18% input cost |
| Specialty chemicals | 0.40 | 0.07 | 1.35 | +10% input cost | +15% input cost |
| Aviation (ATF) | 0.38 | 0.04 | 1.18 | +14% operating cost | +20% operating cost |
Estimated input-cost increase versus a pre-war Brent baseline of $67/bbl. Source: author calculations using ADB MRIO India 35-sector input-output data.
Portfolio Implication
The cleaner expression is macro first, sector second: underweight INR versus USD for the external-balance shock, and underweight crude-sensitive downstream sectors where the input-cost shock is measurable and difficult to hedge quickly.
The sectors above are not a generic "oil is bad for India" screen. They are the sectors where crude-linked inputs sit close enough to the production function for an oil shock to hit margins before demand adjusts. The equity expression should therefore be selective, not a blanket India underweight.
This is a cost-push framework. It does not yet include FX feedback into CPI, demand-side macro response, second-round wage-price effects, or a liquid rates expression. Sector coverage is limited to the four crude-sensitive sectors with computed multipliers in the current analysis. The figures use a single ADB MRIO vintage and should be treated as scenario magnitudes, not point forecasts.