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Commerzbank analysts highlight that India’s March trade deficit narrowed more than expected as imports slumped, but warn this may reverse as Oil prices rise and exports face Middle East-related disruptions. Export declines are broad-based, with sharp falls to key Middle Eastern partners and the US, while lower petroleum import volumes hint at emerging energy supply constraints.
Exports slump as oil and conflict bite
“March trade deficit narrowed more than expected to USD20.7bn (Bloomberg consensus: USD28.5bn) vs USD27.1bn in February. This was driven by a steep fall in imports amid the global economic uncertainty. The trade deficit could widen in the coming months as global oil prices rise, leading to a higher import bill. Exports may also face headwinds from supply chain disruptions due to the conflict in the Middle East.”
“Exports fell for the second consecutive month, contracting 7.8% yoy vs -0.8% in February, the sharpest decline since October 2025. Chemical exports fell 2.0% vs +6.9%, while pharmaceutical shipments dropped 23.2% vs +3.4%. This was likely driven by disruptions to the supply of petrochemical feedstock due to the conflict in the Middle East. Electronic exports also declined 3.3% vs +10.4% previously.”
“By destination, shipments to the Middle East faced significant headwinds as the military conflict disrupted supply chains. Exports to Saudi Arabia fell 45.7% yoy vs -10.5% in February while shipments to the United Arab Emirates sank 61.9% vs -0.3% previously. On the other hand, exports to China helped to cushion the overall decline. They rose 28.1% vs 32.4% previously. Shipments to the US fell 21.0% vs -12.9% in February due to high base effects, as it rose 35.1% in the same period last year.”
“Imports fell 6.5% yoy vs +24.1% in February, the sharpest decline since October 2025. This was largely due to petroleum imports declining 35.9% vs +9.1%. Given the elevated global oil prices, the decline suggests a sharp drop in petroleum import volume, pointing to potential energy supply bottlenecks.”
“Despite some easing in oil prices in recent days, INR remains under pressure due to USD demand from importers as commodity prices remain above pre-conflict levels. The structural issues persist for INR, including elevated oil prices, a widening trade deficit, and a cautious risk backdrop for emerging markets.”
