What a $10‑per‑barrel rise in crude oil prices means for inflation, loans, interest rates and EMIs

According to SBI Research, every $10 increase in crude oil prices per barrel could lead to the following situations:

• Inflation may rise by 35-40 bps (0.35%-0.4%).

• Current Account Deficit (CAD) may rise by 36 bps (0.36%).

• Economic growth may slow down by 20-25 bps.

• GDP growth may fall to 6% if the crude oil price rises to $130, which the report expects to be the worst-case scenario.

How did SBI Research reach the above conclusions?

SBI Research estimated the impact of a $10-per-barrel increase in crude oil prices through both India's heavy reliance on oil imports and a specific mathematical model.

The report says India imports nearly 90% of its crude oil requirements. About two million barrels per day of this, out of 5.5 million, transits through the Strait of Hormuz. About 2 million barrels per day, nearly 40% of India's oil imports, transit through the Strait of Hormuz.

If geopolitical conflicts threaten or close the Strait of Hormuz, global oil prices may spike. If this happens, India will have to suddenly pay significantly more for its primary energy source, triggering "cost-push inflation." This also means that the increased costs of energy and transportation will be passed on to everyday goods and services, driving up overall prices for consumers while simultaneously acting as a drag on national economic growth and widening the trade deficit.

To calculate the exact financial impact due to oil spikes, the SBI Research team used a macroeconomic regression model

• Yt represents the specific macroeconomic variable being tested: either Inflation, Real GDP, or the Current Account Deficit (CAD).

• OilPricet represents the price of crude oil per barrel

• β (Beta) is the key factor that captures the exact "sensitivity" of India's economy to changes in the oil price.

By running this mathematical formula, SBI Research found the precise sensitivity of the Indian economy to oil.

The results of the regression model proved that for every $10 increase in crude oil prices, the "beta" translates to a 35 to 40 basis point rise in inflation, a 20 to 25 basis point slowdown in GDP growth, and a 36 basis point widening of the CAD

"Our regression results indicate that for every ~$10 per bbl increase in crude oil prices may widens the CAD by 36 bps in FY27. The rise in oil price leads to the cost-push inflation to the economy, every ~$10 increase in the oil price may leads to 35-40 bps rise in inflation," SBI Research said.

Impact on inflation, loans, interest rates and EMIs

The escalating West Asia conflict and the resulting oil shock can significantly impact your personal finances in several ways. Some of them are following:

High oil prices can also act as a drag on broader economic expansion. For an average employee, a slowing national economy would translate to tighter corporate budgets, smaller wage hikes, and a tougher job market.

The report notes that these inflation fears are making markets expect central banks to hold rates "higher for longer," which has already pushed the US 10-year treasury yield above 4%.

"Increasing oil prices has raised the fear of energy driven inflation, making markets expect higher Fed rate for longer, in turn increasing the 10-year yield above 4%," the report says.

In the long run, higher global yields usually pressure domestic interest rates, meaning your EMIs for home, auto, or personal loans could remain expensive or increase.

If you are paying for a child's foreign education or planning international travel, a volatile or weakening Rupee makes those foreign expenses significantly more costly.

While the GCC economies usually benefit from high oil prices, the SBI Research warns there is a 5% chance that the geopolitical instability and elevated prices could actually result in a slowdown of inward remittances to Indian households.