Crude oil prices rose for a third day today as militants in Iraq seized more territories and US President Barack Obama warned the crisis may spill over into other countries.
"Iraq is a concern for us... The impact (of violence in Iraq) on oil prices and supplies," a top government source said.
Crude oil prices have shot up to a nine-month high of over $115 per barrel. Since India imports 79 per cent its oil and subsidies fuel, higher oil prices are particularly painful for Asia's third-largest economy.
Spurt in oil prices could exacerbate the country's fiscal and current account deficits as well as its already-high inflation rates.
The fourth-largest oil consumer in the world imported 190 million tonnes of oil in 2013-14. About 13 per cent of this came from Iraq, second only to Saudi Arabia which supplies about 20 per cent of India's oil imports.
Oil prices rising is certainly a matter of concern, the source added.
So far oil production in Iraq has not been disrupted as the violence is restricted to mostly northern and western parts of the country.
Southern Iraq accounted for more than 85 per cent of the country's 3.1 million barrels a day of production in April and all of its 2.5 million bpd of exports are shipped by ship tanker from the Persian Gulf.
West Texas Intermediate (WTI) for August delivery today rose as much as 62 cents to $107.45 a barrel in electronic trading on the New York Mercantile Exchange while Brent gained 61 cents, or 0.5 per cent, to $115.42 a barrel.