Middle East Conflict May Force India to Raise Fuel Prices: RBI Governor

Speaking at a conference in Switzerland on Tuesday, Reserve Bank of India Governor Sanjay Malhotra said that the government may have to hike petrol and diesel prices if the Middle East crisis continues for a longer period.

The Middle East conflict has led to a blockade of the Strait of Hormuz, a key shipping lane through which nearly 20% of the world’s fuel supply passes. The blockade has disrupted oil and gas supplies which have pushed energy prices higher.

India is highly dependent on imports to meet its energy supply, Malhotra said, adding that prolonged disruptions are beginning to impact India.

Rising Energy Prices

Since the start of the conflict the price of crude oil has risen from $76.16 per barrel on March 2 to $105.76 on May 13. This represents an approximately 38% increase in crude oil prices in merely two and a half months. For added context crude prices grew by approximately 20% in the two and a half months preceding the start of the conflict.

For now, the government has not passed on higher fuel costs on to the consumers with Indian Oil Marketing Companies (OMCs) facing losses of ₹30,000 crore a month or ₹1000 crore a day.

The Governor said that it is a “matter of time that the government will actually pass on some of these price increases".

Amid mounting losses, a recent India Today report suggested that the government may increase fuel prices around May 15.

PM’s Austerity Push

Prime Minister Narendra Modi has called for reducing the use of fuel and consumption of edible oil, among other austerity measures, to conserve foreign exchange.

The Rupee has been sliding in value against the dollar and is currently trading below the 95 mark.

The Middle East crisis has put a dent in India’s forex reserves as high fuel prices are increasing the country’s import bill. India is heavily reliant on imports to meet its energy needs, importing more than 85% of its crude oil from external sources.