Should We Brace for Another Fuel Price Hike in India

Russia Ukraine tension leads to Higher Fuel Price

Oil prices continue to rise owing to the geopolitical tensions globally. The ongoing strife between Russia and Ukraine has caused a supply disruption globally. Demand for oil is high as countries emerge out of the deadly lockdowns and life resumes normalcy. There is a deep imbalance between demand and supply which is causing the oil price to rise.

Russia is the largest exporter of oil and other valuable commodities. If tensions continue, it could lead to massive disruption in global trade and commerce. Russia has already deployed troops in Ukraine and is preparing for an attack. All these actions would further lead to higher prices for precious oil and other commodities including aluminum, palladium, potash, nickel, steel, wood fertilizers. Moreover, these actions could also attract sanctions from the US and European allies and could worsen commodity and food price inflation as well as the overall situation.

Brent crude futures are currently trading near the $95/ barrel mark. If prices go beyond the $100-level, it would be bad news for India as the country would need to brace for another price hike. Currently, with elections going on in five Indian states, the price hike is not happening. But it is going to happen sooner than later. It is expected that prices could increase by ~20% this year. Price hike did not happen since December last year as a result of lowering of taxes.  India currently imports 85% of the country’s fuel needs. The fuel price in India is directly proportional to brent prices. Any further hike in fuel will lead to an increase in inflation as the cost of moving goods will also increase. According to a report by the Bank of Baroda, a 10% increase in crude oil price could lead to an increase of 0.9% in India’s WPI.

Equity markets worldwide fell on the deepening Russia-Ukraine crisis and the Indian stock market is not immune. Indian Rupee also fell in response. FPIs are also pulling out of the Indian market. Any chances of further sanctions could further disrupt the global oil supply.