Petrol and diesel prices may have to rise if the Middle East crisis persists, Reserve Bank Governor Sanjay Malhotra has warned, signalling that the government’s effort to shield consumers from higher crude costs could face limits if the disruption keeps energy markets under strain.
Speaking at a high-level conference on the international monetary system in Switzerland on Tuesday, Malhotra said the government had absorbed a significant part of the burden by keeping pump prices broadly unchanged, reducing duties and allowing only limited increases in controlled prices such as gas. He added that a longer conflict could make some pass-through to consumers difficult to avoid.
The remarks mark one of the clearest policy signals yet that pump prices may not remain insulated indefinitely from the oil shock triggered by the West Asia conflict and disruptions around the Strait of Hormuz, one of the world’s most important energy transit routes. India imports the bulk of its crude oil requirements, leaving its inflation outlook, current account position and currency stability exposed to sharp swings in global prices.
Malhotra also underlined that the government had remained fiscally prudent and was continuing on a consolidation path. That point is significant because large-scale tax cuts or fuel subsidies would weaken budget arithmetic at a time when the fiscal deficit target has been placed at 4.3 per cent of GDP for 2026-27, down from 4.4 per cent in the revised estimate for 2025-26.
Retail fuel prices have remained steady despite pressure in global crude markets. Petrol in Delhi is selling at about ₹94.77 a litre and diesel at ₹87.67, while Mumbai prices remain above ₹100 for petrol. The last major retail adjustment came in March 2024, when petrol and diesel prices were cut by ₹2 a litre before the general election schedule was announced.
State-run oil marketing companies have been absorbing losses as crude, shipping and insurance costs rise. Industry estimates place the monthly under-recovery on petrol, diesel and LPG at roughly ₹30,000 crore, a strain that could widen if crude prices remain elevated. Such losses weaken the balance sheets of fuel retailers and may eventually require either price increases, budgetary support, tax adjustments or a combination of all three.
The inflation risk is central to the Reserve Bank’s response. Malhotra said the central bank can look through short-term supply shocks, but may need to act if price pressures deepen and begin influencing expectations. Consumer inflation has remained within the official tolerance band, but fuel costs affect transport, food distribution, manufacturing, aviation and household budgets, making energy one of the most politically sensitive components of the price basket.
The government faces a narrow policy trade-off. Holding prices steady protects households and small businesses from an immediate cost shock, but it transfers the burden to oil companies and public finances. Raising prices would reduce under-recoveries and preserve fiscal space, but it risks feeding inflation and weakening consumption at a time when households are already dealing with higher costs in several essential categories.
Energy security concerns have also sharpened. The Strait of Hormuz remains a vital route for crude oil, liquefied natural gas and LPG shipments. Even partial disruptions increase freight rates, insurance premiums and delivery uncertainty. India-bound vessels have continued to cross the route, but the conflict has revived attention on strategic reserves, diversified sourcing, refinery flexibility and longer-term supply projects, including proposals to strengthen access to Gulf energy through alternative infrastructure.
Malhotra’s comments also come against a broader effort to conserve foreign exchange and reduce vulnerability to external shocks. Higher energy imports tend to widen the trade deficit and add pressure on the rupee, especially when capital flows turn cautious. A weaker rupee then makes imported crude costlier in local currency terms, creating a feedback loop that complicates inflation management.
