Monday’s surge in crude oil prices should set the alarm bells ringing in New Delhi. The price of benchmark Brent crude shot up 25 per cent to over $118 a barrel sending India’s stock markets and the rupee on a tailspin. Prices softened by end of day but they are still around $105 a barrel. It is clear that oil markets are nervous.
Oil crises have never been good for the global economy. Whether it was 1973, 1979, 1991, 2008 or 2022, oil shocks have left a permanent scar impacting global growth for several years that followed. We could be looking at a repeat unless the war ends right away, which seems rather unlikely. For India, the crisis has rudely interrupted what was a Goldilocks period of rapid growth, low inflation and stable macroeconomic indicators. President Trump and Prime Minister Netanyahu, with their assault on Iran, have snatched the punch bowl away from what was set to be a rocking party for the economy. Robust tailwinds have now turned into strong headwinds leaving the Centre with rather difficult options to navigate through the turbulence.
High oil prices coupled with scarcity wilI hit the economy through multiple channels. First, of course, is the direct impact. India imports more than 90 per cent of its oil needs. While the Centre is sanguine over available stocks of crude oil and petroleum products (will last about a month), the price shock will be a nasty blow. It is estimated that a 10 per cent rise in crude price will push up inflation by 35 basis points and shave 10 basis points off GDP growth. In addition, there will be the second order impact as a range of industries from airlines and transport to fertilizers, chemicals and petrochemicals feel the pinch of scarcity and a surge in input costs. And then there is the gas economy, natural gas and cooking gas. India imports over 65 per cent of its cooking gas, most of it from the Middle-East. The Centre’s directive over the weekend to refineries to direct propane and butane for producing cooking gas is an indication of the delicate supply balance. Retail prices were also increased for both domestic and commercial consumers on Sunday. Supply of natural gas to industrial consumers has also been curtailed which will have an impact on the economy.
The Centre has three options to manage the price shock. One, cut excise duty on fuels; two, pass on the price increase to consumers and three, fall back on the oil companies to absorb the shock. The Centre may prefer the last option as it is the least disruptive in the immediate context and there is precedent. The five national oil companies together have cash in hand of ₹95,000 crore (trailing 12 months to December 2025) but they also have net debt of about ₹4.23 lakh crore. And these companies are listed, with public shareholders. The option, therefore, can offer only limited comfort. The developing situation is probably the biggest challenge for the Centre since Covid and it needs to strategise carefully. To start with it should take citizens into confidence on the crisis they face rather than presenting an ‘all-is-normal’ face.
Published on March 9, 2026