Since the US-Iran war began two months ago, crude oil prices have surged sharply, hovering between $100–120 per barrel as I write this editorial. With no end to the war, with both nations sticking to their demands for a peace deal, the prices of crude oil is likely to surge even more. This means it will be an added burden on our already strained Indian manufacturing sector. And if you ask me what the ramifications of the ever-increasing crude oil prices on our manufacturers, I would say this is not just another global fluctuation; it is a direct cost shock for Indian SMEs.
We often don't give much thought and we have this general perception that crude oil is just a fuel, but in actuality its impact runs much deeper. It influences the cost of plastics, chemicals, packaging, and especially transportation. When oil prices rise the entire supply chain becomes expensive. For small manufacturers this means paying more to procure raw materials and also even more to deliver their finished goods. In sectors like plastics, textiles, chemicals, and FMCG, the pressure is immediate and unavoidable.
What makes the situation even more grim for India is our heavy dependence on crude oil imports. Since over 80 percent of crude oil comes from abroad, any global disruption quickly translates into domestic cost inflation. Already higher crude prices are pushing up freight costs and this in turn is leading to inventory pile-ups. Goods are becoming costlier to move, demand is highly softening, and working capital is getting locked in unsold stock. However manufacturers fear that passing on the burden to importers and even to customers might lead to cancelation of orders.
I feel the real challenge for our SMEs lies in their limited ability to pass on these increased costs. Larger companies may still have the pricing power or financial cushion to adjust, but small businesses can't do that. They are caught in rising input costs on one side and price-sensitive customers on the other.
In my view, if this trend continues it risks slowing down manufacturing growth at a time when India is trying to position itself as a global production hub. I think our policymakers need to recognise that crude oil shocks do not affect all players equally. Targeted support whether through tax relief on fuel or easier access to working capital could make a meaningful difference.
In the end, crude oil is no longer just a global commodity. For Indian SMEs, it has become a daily cost pressure that quietly, but significantly determines their survival and growth. Let's just hope that better days are ahead of us.
