India’s oil–dollar double squeeze as a comparator, June–September 2026, and four steps for Türkiye
ABSTRACT
Energy-importing emerging economies faced two simultaneous pressures in 2026: a higher dollar price of oil and tighter dollar financing after the Federal Reserve’s 16 September hike. Using India as a comparator and reading Kpler, Axis Bank and official price data through Kilian (2009) and Choi et al. (2018), this piece finds that Russian crude gave India volume security without a price shield: the discount stayed at $3–5, Russian purchases fell 32% in early August, and wholesale inflation reached 9.92% against consumer inflation of 4.82%. For Türkiye, whose risk is persistent household expectations, it derives four steps; the principal risk is that reserves and real-rate credibility rest on the same reversible inflows.
1. The strategic problem
For an oil importer, the local-currency cost of crude is the dollar price multiplied by the exchange rate. In 2026 restricted transit through Hormuz raised the first factor. On 16 September the Fed raised its policy rate to 3.75–4.00%, and its median projection places the federal funds rate at 4.1% at end-2026 and at end-2027 (Federal Open Market Committee [FOMC], 2026), making dollar financing dearer for emerging economies. Because the factors multiply, each depreciation applies to an already higher dollar price. India, which imports more than 88% of its crude and receives about half of it through Hormuz (De, 2026), is one of the largest economies caught between the two. This piece asks what India’s buffer achieved in June–September 2026 and what Türkiye’s external buffer strategy should take from it. Its claim is that supplier substitution buys volume, not price, so a buffer should be judged by the channel through which it lets the shock arrive. Rupee and lira exchange-rate levels are not available from primary sources reviewed, so the currency leg is traced through prices and policy indicators.
2. Where advantage sits
Kilian (2009) separates oil price increases into supply shocks, global demand shocks and precautionary demand shocks arising from fear of future supply loss. Switching supplier can offset the volume effect of a supply shock but not the precautionary premium in the world price. Choi et al. (2018), using panel data for advanced and developing economies, find that average pass-through from oil prices to domestic inflation is similar across the two groups, that cross-country differences are explained by the transport share of the consumer basket and by energy subsidies, and that the decline in pass-through over time owes much to more credible monetary policy. Advantage therefore sits less with the importer that finds a cheaper supplier than with the one whose monetary credibility limits how far the shock travels.
3. What India’s buffer bought
India replaced lost Gulf volume with Russian crude. It bought 2.55 mb/d of Russian crude in June (May: 2.13 mb/d); Russia’s share of imports rose from 23% before the war to about 50%, while imports from Saudi Arabia fell from 832,000 b/d to 349,000 b/d (Marine Insight, 2026).
Axis Bank’s report of 22 September contains the decisive price observation: the $3–5 discount of Russian crude to West Asian crude has been stable since 2023, and Axis Bank attributes the higher purchases to the supply shock, not the discount (NewKerala, 2026). A fixed discount keeps the price India pays tied to Brent: when supply loss and precautionary demand lift the world price, the Russian barrel becomes dearer by the same amount. The volume buffer also narrowed. According to Kpler-based reporting, Russian purchases fell to about 1.9 mb/d in the first half of August, roughly 32% below July’s record 2.8 mb/d, with about 700,000 b/d from the UAE and 480,000 b/d from Saudi Arabia (Free Press Journal, 2026).
The cost accumulated upstream. India’s consumer inflation rose to 4.82% in August (July: 4.45%) while wholesale inflation reached 9.92% (July: 9.78%) (ThePrint, 2026). The wholesale index reflects imported input costs more directly, and the five-point gap shows that the cost had not yet reached consumers. The available data cannot split that gap between the oil price and the exchange rate.
4. Türkiye’s position: ends, ways and means
Türkiye entered the shock from a different starting point. Annual CPI inflation was 31.51% in August (Dünya, 2026a). On 10 September the Central Bank of the Republic of Türkiye (CBRT) held the policy rate at 37%; according to the MPC summary, gross reserves rose by $21.6 billion to $184.2 billion, while household inflation expectations rose to 45.6% (Dünya, 2026b). The ex post real rate is about 5.5 points (37 − 31.51 = 5.49), and household expectations stand about 14 points above realised inflation (45.6 − 31.51 = 14.09) (author’s calculations). Özlale and Pekkurnaz (2010) show with a structural model that oil price shocks worsen Türkiye’s current account in the short run, so the oil channel also runs through the external balance.
The end is to stop the oil shock becoming persistent inflation through household expectations while keeping the external buffer intact. The ways are monetary credibility, reserve management and diversification for volume; the means are the CBRT’s rate, reserves and communication, and the supply contracts of BOTAŞ and refiners.
5. Step one: count supplier switches as volume insurance only
India’s record shows that a discounted supplier tied to Brent protects availability, not cost. In July 2026 the energy import bill rose 13.1% year on year to $5.825 billion, while crude import volume rose only 0.3% to 2.931 million tonnes (Ekonomi Gazetesi, 2026). The bill grew through price or non-crude energy, not crude volume, so diversification should be justified by outage protection and kept out of inflation planning. The indicator is the gap between growth in the energy bill and growth in import volume.
6. Step two: make household expectations the target of the buffer
India’s risk is lagged pass-through from wholesale to retail prices; Türkiye’s is that household expectations about 14 points above realised inflation make pricing behaviour persistent. Since Choi et al. (2018) find that credibility reduces pass-through, the buffer Türkiye controls is the positive real rate and the CBRT’s stated condition that the stance will be tightened in case of a “marked and persistent deterioration” in the inflation outlook (Dünya, 2026b). The indicator is the distance between household expectations and realised inflation, which should narrow before any easing.
7. Step three: separate the reserve buffer from carry inflows
In July official reserves rose by $14.25 billion, alongside net portfolio inflows of $5.84 billion and direct investment of $514 million; the current account posted a $36 million surplus and the surplus excluding gold and energy was $4.972 billion (Dünya, 2026c). Energy and gold thus carried a net deficit of about $4.9 billion in July (4.972 − 0.036; author’s calculation). Portfolio inflows respond to a rate differential that narrows as the Fed tightens, so the buffer that counts against the dollar-financing leg is reserves net of such inflows. The indicator is the reserve change net of portfolio flows around the late-October FOMC meeting.
8. Step four: hold the buffer through the lag
India’s wholesale–retail gap shows that a shock can sit upstream before reaching consumers. Türkiye faces a similar sequence across two channels: Özlale and Pekkurnaz (2010) place the external effect in the short run, while expectations carry the price effect into 2027. Releasing reserves or easing policy in late 2026 on the strength of a temporary oil decline would spend the buffer before the lagged effect arrives. The indicator is the energy component of the monthly balance of payments.
9. The principal risk
The anchor of step two and the buffer of step three rest on the same asset. A positive real rate attracts the portfolio inflows that help build reserves; if US rates rise further, those inflows can reverse just as energy pass-through peaks, reopening the currency leg. Private consumption also fell in the second quarter (Dünya, 2026b), a possible domestic cost of holding the rate, although the source draws no causal link.
10. Outlook: Türkiye, Saudi Arabia and the World
Globally, the Fed calendar is decisive: the FOMC meets on 27–28 October and again on 8–9 December (Board of Governors of the Federal Reserve System, 2026). If the median path of 4.1% for end-2026 holds (FOMC, 2026), dollar financing for emerging economies has little reason to ease before 2027, and the currency leg persists even if oil falls.
For Türkiye, September CPI is due on 5 October (Dünya, 2026a) and the MPC meets on 22 October (Uzmanpara, 2026). A Fed hike in October together with an energy-driven rise in September CPI would raise the likelihood that the CBRT activates the tightening condition it has set (Dünya, 2026b). For 2027 the main variable is whether household expectations converge on realised inflation.
For India, Brent held at September levels would close the wholesale–retail gap through retail prices; a Gulf recovery would let it close through wholesale prices. Saudi Arabia supplies the second path: on 22 September Aramco informally assured at least three Asian refiners of Yanbu loadings soon, while denying at least two European refiners October term allocations (The Edge Malaysia, 2026). If that priority persists, India’s Saudi imports could rise from about 480,000 b/d in early August, lowering its dependence on Russian crude.
11. Conclusion
India managed the 2026 shock in volume, not in price: a stable $3–5 discount kept its barrel cost tied to the world price, the 32% fall in August purchases marked the limit of the volume buffer, and the cost accumulated in 9.92% wholesale inflation against 4.82% at the consumer level. Türkiye faces the same shock with a positive real rate and rising reserves, but with household expectations of 45.6%. Its strategy should treat supplier switches as volume insurance, aim the buffer at household expectations, count reserves net of reversible inflows and hold the buffer through the lag into 2027. Buffers change the timing and channel of an oil shock, not its source.
SOURCES
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Furkan Mahmut Tameroglu