Oil at $125/bbl: Is Rs 5 fuel price hike inevitable? Economists see inflation risk, call it ‘near-term challenge’ 

Economists believe a knee-jerk impact is unlikely as the government has been absorbing a major chunk of the price surge seen since the beginning of the Iran-US war. They consider this more of a near-term challenge and see India is well placed to deal with the implications. 

Impact of supply chain disruption more severe for India now

Garima Kapoor, Deputy Head of Research & Economist at Elara Capital, said that it is not crude prices that are impacting India, but supply chain disruptions. “More than crude going to $120, it is crude derivatives becoming expensive that is affecting availability of industrial supplies, raw materials, and inputs. Also, the shock to supply chains due to the Strait of Hormuz situation is impacting us.”

Crude at $125: Impact on petrol prices

She added that, “Consumer balance sheets have strengthened compared to a year or two ago. Additionally, India has not seen an increase in retail fuel prices since 2022. Therefore, a modest hike of Rs 4–5 appears manageable.”

She believes that government will continue with a calibrated approach, “Our assessment is that the government will continue to use a staggered approach — a wait-and-watch strategy, passing through gradually and assessing the situation,” Kapoor said.

Crude price a near-term challenge, India well-placed to absorb impact: Kotak Securities 

Anindya Banerjee, Head Of Commodity and Currency Research, Kotak Securities believes that “the current spike in Brent is a near-term challenge that the system is absorbing — and once Hormuz reopens, the structural picture is genuinely positive for India given the UAE OPEC exit, the eventual Iranian recovery, and the broader supply additions that follow.”

On the immediate macroeconomic impact of $125 Brent, Banerjee said, “Yes, there is some pressure on the current account and on the rupee — that is unavoidable for a major oil importer in a war-driven price environment. But the policy toolkit is well-prepared.”

He also highlited that the RBI is managing volatility through measured intervention, retained excise at the centre is providing fiscal absorption, and OMC pump-price discipline is buffering the inflation pass-through. 

India well-positioned amid global dual energy crisis: Kotak 

He stressed that the world is currently facing a dual energy crisis—one of availability and another of rising costs. however, Banerjee noted that India has positioned itself strongly on the supply front. Over the past decade, the country has significantly diversified its crude sourcing, reducing dependence on any single region. In terms of cost also India is working to reduce its dependence on the US dollar in energy trade. 

CAD to widen by 1% of GDP as oil risks rise: Elara Capital 

Speaking on the implications on the current account deficit, Garima Kapoor noted that there there will be a significant impact on India’s overall growth, current account deficit and inflation.

“We are looking at a growth impact of 40 basis points (bps). We expect the current account deficit to increase by 1% of GDP, and a CPI upside of about 40 to 50 basis points.”

Kapoor noted while assuming oil to remain at an average of about $90 per barrel to $95 per barrel through the financial year for India, and assuming that the resolution of the current crisis will happen sometime in the 1HFY27.

Beyond this, it will be a delicate balance for the government in terms of how much of the shock it absorbs on its balance sheet and how much it passes on.

“However, I would say that consumer balance sheets have become somewhat better and stronger than they were a year or two ago. India has not seen a retail pump price increase since 2022, and hence, a modest increase of four to five rupees, if the government decides to implement it to alleviate some of its fiscal pressures, should not be seen as extremely negative,” Kapoor noted.