Petrol and diesel prices in India are anticipated to increase due to climbing crude oil prices and ongoing geopolitical tensions, particularly in West Asia. Economists have indicated that the country is approaching a critical juncture regarding fuel pricing as Brent crude prices have surpassed $105 per barrel. This surge has brought renewed uncertainty involving the US-Iran conflict and other regional issues that affect crucial oil shipping routes.

Although a rise in fuel prices appears imminent, experts suggest that consumers should expect gradual rather than abrupt increases in prices. Manoranjan Sharma, Chief Economist at Infomerics Ratings, expressed the view that the prevailing economic conditions are exerting more influence than policy decisions.

Sharma further stated that it is likely fuel price increases could occur after May 15, with expected rises of Rs 4–5 per litre for petrol and diesel, alongside a potential increase of Rs 40–50 for LPG cylinders. He noted that oil marketing companies are currently sustaining significant losses while selling fuel below market rates.

Economic Implications of Rising Crude Oil Prices

The financial consequences of rising crude prices are affecting oil marketing companies, which are reportedly incurring losses of approximately Rs 30,000 crore each month due to the unsustainable pricing strategies. This situation is becoming increasingly difficult to manage if crude prices remain high for any extended period, as India imports over 85 per cent of its crude oil requirements.

Economists suggest that while immediate sharp price hikes are unlikely, incremental adjustments are preferable to avoid sudden inflationary shocks. Sharma mentioned that gradual increases in the range of Rs 2–4 per litre would be more manageable for consumers and would help mitigate inflation. However, he cautioned that sustained high crude prices might compel policymakers to initiate immediate corrections followed by slower increases.

Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, shares a similar sentiment, believing that a gradual approach to price adjustments would be more sustainable than a large one-time increase. He pointed out that managing the fiscal deficit necessitates some level of price increases in fuels.

Government Responses to Elevated Crude Oil Prices

In light of the rising crude prices, Prime Minister Narendra Modi has encouraged citizens to consider reducing fuel consumption, utilise public transport, and adopt work-from-home arrangements when feasible. Economists perceive this as a strategic response aimed at addressing the challenges posed by escalating fuel costs.

Vijayakumar interpreted the Prime Minister’s call for austerity as a short-term measure that is likely to prevail only while tensions in West Asia persist and crude prices remain high. He added that oil prices could potentially decline if geopolitical tensions ease, which would in turn relieve some pressure on consumers.

Higher fuel prices typically have widespread ramifications beyond just the fuel industry. An increase in fuel prices generally leads to elevated transportation costs, which affects logistics, food delivery, airfares, and daily commuting expenses. Over time, businesses often transfer these heightened costs to consumers, influencing inflation and household expenses significantly.

Currently, retail inflation in India remains moderate; however, economists warn that a sustained period of crude prices exceeding $100 per barrel could complicate future inflation forecasts. Sharma indicated that the combination of rising oil prices, increased import costs, and pressure on the rupee is creating broader macroeconomic challenges.

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