India’s current account deficit (CAD) is projected to encounter significant upward pressure in the fiscal year 2025, largely driven by the fluctuating dynamics of global crude oil prices. A recent report from Union Bank of India (UBI) has underscored this vulnerability, indicating that for every $10 per barrel increase in oil prices, India's annual CAD could worsen by an estimated $15 billion. Despite this looming risk, UBI has maintained its CAD forecast at 0.9% of GDP for FY25, though it has cautioned about a marginal upside risk primarily influenced by trends in commodity prices, particularly crude oil and metals. Looking ahead to FY26, the bank anticipates a widening of the CAD to 1.2% of GDP, reinforcing its outlook for an expanding deficit.

The recent trajectory of the global oil market provides a tangible context for these concerns. Over the past month, Brent crude has traded within a range of $64 to $76 per barrel, experiencing a notable 14% surge in the last 15 days, a rise attributed to escalating geopolitical tensions. This upward movement in crude prices is identified as a crucial factor with the potential to substantially impact India’s trade deficit and, consequently, the overall health of its external sector. UBI’s analysis further suggests that while the broader global commodity price environment remains a key risk, the prevailing weak global demand and sluggish export growth could offer some degree of mitigation, potentially softening the adverse impact on India’s overall trade balance. However, the report issues a strong warning: any further intensification of Middle East tensions could place severe strain on India’s import bill, given the CAD's inherent high sensitivity to oil price fluctuations.

Conversely, India’s invisible surplus, predominantly propelled by its robust services exports, continues to serve as a vital counterbalancing force. In FY25, the nation recorded a substantial services trade surplus of $188.75 billion. This significant surplus was instrumental in offsetting a considerable oil trade deficit, which amounted to $122.45 billion during the same period, thereby highlighting the resilience and importance of India's services sector in maintaining external balance. Furthermore, UBI emphasizes that broader geopolitical developments, including potential tariff actions and the negotiation of new trade agreements with key economic partners such as the US or Europe, will also play a significant role in shaping India’s external sector outlook in the upcoming quarters, adding layers of complexity to future economic projections.