Rising Crude Oil Prices Pose Inflation Risk for India

New Delhi, June 20, 2025 — Global crude oil prices climbed this week, raising fresh concerns for India, the world’s third-largest oil importer, as higher import costs threaten to widen the trade deficit and strain inflation control efforts. The rally comes amid heightened geopolitical tensions and tighter global supply conditions, creating fresh challenges for policymakers in New Delhi.

Brent crude rose to $86.40 per barrel (approx. ₹7,170), while WTI crossed $82.70 (approx. ₹6,860), driven by escalating unrest in the Middle East, unexpected U.S. inventory drawdowns, and continued output cuts by OPEC+ members. For India—which imports over 85% of its crude oil—this rise directly impacts fuel pricing, subsidy costs, and the rupee’s exchange rate dynamics.

According to officials within the Ministry of Petroleum and Natural Gas, the government is monitoring the situation closely, particularly as global freight risks increase in the Strait of Hormuz—a vital passage through which a significant portion of India’s oil supply flows. Disruptions here could cause logistical delays and increase shipping premiums, further inflating the landed cost of crude.

The Indian basket of crude, which tracks a blend of imported oils relevant to India, has also inched up, nearing $84 per barrel (approx. ₹6,970). While public sector oil marketing companies (OMCs) have so far avoided raising domestic fuel prices, industry insiders suggest that continued upward pressure could force a revision, especially if global rates remain elevated into July.

Meanwhile, India’s fuel demand remains robust. Petrol and diesel consumption in May rose 4.8% and 6.1% year-on-year, respectively, driven by strong passenger mobility, industrial activity, and a steady recovery in air travel. However, rising crude costs could temper this momentum if pump prices start climbing.

The Reserve Bank of India, which is currently navigating a delicate balance between supporting growth and containing inflation, may also be impacted. Although headline inflation has cooled to 3.2%, sustained high oil prices could transmit to consumer inflation through higher transport and input costs—particularly in agriculture and manufacturing.

“With India heading into the monsoon season, diesel demand from the agri sector will spike. Any price rise will have a cascading effect,” said Arvind Menon, a senior economist at ICRA. “From a macro lens, oil at $90 (₹7,470) would begin to hurt both the fiscal math and the inflation outlook.”

India has traditionally managed oil price shocks through a combination of fuel subsidies, excise adjustments, and diplomatic diversification of suppliers. Recent agreements with Russia, the UAE, and Latin American producers have helped broaden sourcing, but pricing remains tightly linked to global benchmarks.

As global attention turns to the next OPEC+ meeting and U.S. Fed rate decisions, Indian policymakers are watching closely. A sustained crude rally could prompt mid-year revisions to import forecasts, subsidy allocations, and fuel tax strategies.

For now, the Centre is holding prices steady—but pressure is mounting.