The impact of higher oil prices triggered by the Iran war has not been substantial on domestic prices so far, as inflation is near the lower bound of the target, Finance Minister Nirmala Sitharaman said on Monday.
According to the Reserve Bank of India’s Monetary Policy Report released in October 2025, if crude oil prices rise by 10% above the baseline assumption and are fully passed on to domestic consumers, inflation could increase by about 30 basis points, the minister said in a written reply to the Lok Sabha.
However, the actual effect depends on several variables such as exchange rate movements, global supply-demand conditions, monetary policy responses, the prevailing inflation environment, and the extent to which higher crude costs are transmitted to domestic prices, she said.
The Indian basket crude rose from $69.01 per barrel at February-end to $80.16 by March 2, 2026, she said.
“Given that India’s inflation is near the lower bound, the impact on inflation is not estimated to be substantial at this point,” Sitharaman said.
Rising Oil prices
However, oil prices surged to more than $119 a barrel on Monday, hitting levels not seen since mid-2022, as some major producers cut supplies and fears of prolonged shipping disruptions gripped the market due to expectations that the Iran war could last for months.
This jump followed geopolitical clashes that began in West Asia on February 28. Before this development, both global crude prices and the Indian basket had been on a declining trend for nearly a year.
Recent inflation trends also suggest that price pressures have been moderating. Average retail inflation, measured through the Consumer Price Index (CPI), declined from 5.4% in 2023–24 to 4.6% in 2024–25. It fell further to around 1.8% during April–January of the 2025–26. Headline inflation stood at 2.75% in January 2026, close to the lower limit of the RBI’s inflation target band of 4% with a tolerance range of plus or minus two percentage points.
Both monetary and fiscal authorities have taken measures to maintain price stability. The Monetary Policy Committee has reduced policy rates by a cumulative 125 basis points since February 2025.
Meanwhile, the government has implemented administrative steps such as maintaining buffer stocks of essential food items, managing imports and exports during shortages, imposing stock limits on certain commodities, selling subsidised food under the Bharat brand, reducing fuel taxes, improving storage infrastructure, and rationalising tax policies to support household incomes. These combined efforts have helped keep inflation under control despite external uncertainties.