Impact of rising crude oil prices on inflation not seen to be substantial at this point
India’s inflation near the lower bound, FM says; analysts point out that oil over $100 per barrel puts questions over Budget 2026-27 math.
- Mar 9, 2026,
- Updated Mar 9, 2026 2:46 PM IST
As crude oil prices crossed $100 billion per barrel for the first time in four years amidst the West Asia crisis, the Centre’s Budget math for 2026-27, presented just a month ago, is up for question.
Union Finance Minister Nirmala Sitharaman on March 9 underlined that given that India’s inflation is near the lower bound, the impact of the West Asia crisis and rising crude oil prices on inflation is not estimated to be substantial at this point.
Responding to a question in Lok Sabha on the impact of rising global crude oil prices, the Finance Minister noted that the price of both global crude oil and the Indian basket has been on a declining trajectory for the past one year, till the geopolitical clashes commenced in West Asia on February 28, 2026. “Between the end of February and till 2nd March 2026, the Crude Oil FOB Price (Indian Basket) rose from $69.01/barrel to $80.16/barrel,” she noted.
The Monetary Policy Report of the Reserve Bank of India (RBI), released in October 2025, estimated that if crude oil prices are higher by 10% than the baseline assumptions, and assuming full pass-through to domestic prices, inflation could turn out to be higher by 30 basis points.
“However, the medium-term impact of the global crude oil price rise on inflation depends on several factors, including exchange rate movements, global demand and supply situation, monetary policy transmission, the state of general inflation, and the extent of the indirect pass-through,” she further said.
The average retail inflation measured by the Consumer Price Index declined from 5.4% in 2023-24 to 4.6% in 2024-25 and further to 1.8% in 2025-26 (April-January). The headline inflation for January 2026 stood at 2.75% and is near the lower bound of the RBI’s inflation tolerance band of 4% ± 2%, she informed the Lok Sabha.
According to sources, while the government remains hopeful that the conflict in West Asia will be contained and short lived, there is now growing worry over the rising crude oil prices along with the depreciation in the rupee. The impact, if the crisis continues, even for a month, would be felt on the trade deficit and balance of payments, fiscal deficit and the subsidy bill for oil and fertilisers and to some extent on inflation depending on the pass through of prices.
The government has already increased the price of domestic cooking gas cylinder by Rs 60 due to the higher energy cost. Today afternoon, Brent crude oil price surged to over $100 per barrel and was trading at about $106 per barrel. Compared to this, at the time of the presentation of the Union Budget, Brent crude oil was at about $69.32 per barrel on January 30, 2026.
“For India, apart from the supply, the price of crude oil is also crucial. The West Asia crisis has led to a sharp surge in prices and even though supply is available from Russia, there is a premium,” noted a person familiar with the development.”
The Monthly Economic Review of the Finance Ministry noted that despite the country’s high import dependency on crude oil, it has sufficient foreign exchange reserves, a low CAD (which stands at 0.8% of GDP in H1FY26), and low inflation rates, which collectively allow it to effectively mitigate the impacts of rising global crude oil prices and ensure domestic energy security.
“However, if the crisis persists, it could have material implications for the exchange rate and the current account deficit and could stoke inflationary pressures (which otherwise have supportive supply-side dynamics),”it said.
According to ICRA, a $10 per barrel increase in crude oil prices will increase the country's CAD by 0.3% of the GDP.
Analysts also remain concerned about the impact of the surging crude oil prices on the domestic economy given that India imports about 85% of its requirements. “A sustained rise in crude prices elevates input costs across the economy, widens the current account deficit, and exerts upward pressure on domestic inflation,” said a report by HDFC Securities, adding that equity markets tend to reprice swiftly in response, particularly in oil-sensitive sectors such as aviation, paints, cement, and chemicals.
As crude oil prices crossed $100 billion per barrel for the first time in four years amidst the West Asia crisis, the Centre’s Budget math for 2026-27, presented just a month ago, is up for question.
Union Finance Minister Nirmala Sitharaman on March 9 underlined that given that India’s inflation is near the lower bound, the impact of the West Asia crisis and rising crude oil prices on inflation is not estimated to be substantial at this point.
Responding to a question in Lok Sabha on the impact of rising global crude oil prices, the Finance Minister noted that the price of both global crude oil and the Indian basket has been on a declining trajectory for the past one year, till the geopolitical clashes commenced in West Asia on February 28, 2026. “Between the end of February and till 2nd March 2026, the Crude Oil FOB Price (Indian Basket) rose from $69.01/barrel to $80.16/barrel,” she noted.
The Monetary Policy Report of the Reserve Bank of India (RBI), released in October 2025, estimated that if crude oil prices are higher by 10% than the baseline assumptions, and assuming full pass-through to domestic prices, inflation could turn out to be higher by 30 basis points.
“However, the medium-term impact of the global crude oil price rise on inflation depends on several factors, including exchange rate movements, global demand and supply situation, monetary policy transmission, the state of general inflation, and the extent of the indirect pass-through,” she further said.
The average retail inflation measured by the Consumer Price Index declined from 5.4% in 2023-24 to 4.6% in 2024-25 and further to 1.8% in 2025-26 (April-January). The headline inflation for January 2026 stood at 2.75% and is near the lower bound of the RBI’s inflation tolerance band of 4% ± 2%, she informed the Lok Sabha.
According to sources, while the government remains hopeful that the conflict in West Asia will be contained and short lived, there is now growing worry over the rising crude oil prices along with the depreciation in the rupee. The impact, if the crisis continues, even for a month, would be felt on the trade deficit and balance of payments, fiscal deficit and the subsidy bill for oil and fertilisers and to some extent on inflation depending on the pass through of prices.
The government has already increased the price of domestic cooking gas cylinder by Rs 60 due to the higher energy cost. Today afternoon, Brent crude oil price surged to over $100 per barrel and was trading at about $106 per barrel. Compared to this, at the time of the presentation of the Union Budget, Brent crude oil was at about $69.32 per barrel on January 30, 2026.
“For India, apart from the supply, the price of crude oil is also crucial. The West Asia crisis has led to a sharp surge in prices and even though supply is available from Russia, there is a premium,” noted a person familiar with the development.”
The Monthly Economic Review of the Finance Ministry noted that despite the country’s high import dependency on crude oil, it has sufficient foreign exchange reserves, a low CAD (which stands at 0.8% of GDP in H1FY26), and low inflation rates, which collectively allow it to effectively mitigate the impacts of rising global crude oil prices and ensure domestic energy security.
“However, if the crisis persists, it could have material implications for the exchange rate and the current account deficit and could stoke inflationary pressures (which otherwise have supportive supply-side dynamics),”it said.
According to ICRA, a $10 per barrel increase in crude oil prices will increase the country's CAD by 0.3% of the GDP.
Analysts also remain concerned about the impact of the surging crude oil prices on the domestic economy given that India imports about 85% of its requirements. “A sustained rise in crude prices elevates input costs across the economy, widens the current account deficit, and exerts upward pressure on domestic inflation,” said a report by HDFC Securities, adding that equity markets tend to reprice swiftly in response, particularly in oil-sensitive sectors such as aviation, paints, cement, and chemicals.