Reserve Bank Governor Sanjay Malhotra has indicated that the Indian government may eventually have to increase petrol and diesel prices if the ongoing Middle East crisis continues for an extended period, as reported by PTI on Wednesday.
Impact of Middle East Crisis on India
Speaking at a conference in Switzerland on Tuesday, Malhotra highlighted that disruptions in oil and gas supplies due to the conflict and the blockade of the Strait of Hormuz have started affecting India, which relies heavily on energy and fertilizer imports. He stated that if the crisis persists, it is only a matter of time before the government passes on some of these price increases to consumers.
Despite the West Asian conflict that began on February 28, the government has refrained from raising retail petrol and diesel prices so far. Malhotra also noted that the government has remained fiscally prudent and continues on its path of fiscal consolidation.
Economic Pressures Mount
The comments come amid increasing pressure on India's external sector due to elevated crude oil prices and a weakening rupee, which has slipped below the 95 mark against the US dollar. Prime Minister Narendra Modi has previously called for measures such as reducing fuel consumption and lowering edible oil usage to help conserve foreign exchange reserves.
As global crude oil prices surge due to the prolonged Middle East conflict and disruptions around the Strait of Hormuz, India has so far avoided major increases in petrol and diesel prices. Instead, it has chosen to absorb the pressure through state-run oil marketing companies (OMCs), tax adjustments, and supply management measures.
Government Assurance on Fuel Supplies
The Centre has repeatedly assured that there is no fuel shortage in the country and no plan to introduce rationing of petrol, diesel, or LPG despite disruptions in global energy shipments linked to the Iran conflict and the Strait of Hormuz crisis. Oil Secretary Neeraj Mittal recently stated, "There is no need to panic. There are sufficient supplies. There is no rationing in place. It's not going to happen." Officials indicated that India currently maintains around 60 days of fuel stocks and nearly 45 days of LPG inventories despite ongoing volatility in global energy markets.
OMCs Face Heavy Losses
The government's decision to hold retail fuel prices steady despite rising international crude rates has increased pressure on state-run oil companies. According to official discussions, OMCs are estimated to be losing between Rs 1,000 crore and Rs 1,200 crore every day due to elevated crude prices and unchanged pump rates. Under-recoveries are estimated to have approached nearly Rs 2 lakh crore during the first quarter of 2026.
The current crisis intensified after shipping movement through the Strait of Hormuz—a key global oil transit route handling nearly one-fifth of global crude flows—came under severe disruption during the Iran conflict. Brent crude prices surged above $110 per barrel during the latest phase of the crisis, sharply increasing import costs for major oil-consuming countries like India. India imports nearly 90% of its crude oil requirements, making the economy highly vulnerable to global energy price shocks.
Government Focus on Supply Stability and Inflation Control
The Centre has simultaneously attempted to prevent inflationary shocks and avoid panic in domestic fuel markets. Officials said India has increased procurement from alternate suppliers and secured additional energy cargoes to maintain uninterrupted supplies. Mittal noted, "We have procured from other sources. We have procured from other countries. We have increased procurement from existing countries and that has kept us going in terms of supply management in the short run."
The government has also absorbed part of the global price shock through excise duty adjustments on petrol and diesel. Officials estimate the revenue impact of fuel-related tax reductions at nearly Rs 1.6 lakh crore. Prime Minister Narendra Modi urged citizens to conserve fuel, reduce unnecessary imports, and avoid wasteful consumption as rising oil prices increase pressure on India's import bill and foreign exchange reserves. He also encouraged greater use of public transport, carpooling, electric vehicles, and work-from-home arrangements wherever possible. The government has described these as precautionary steps rather than emergency restrictions.
Pressure Likely to Continue
Fuel prices remain among the most politically sensitive economic issues in India because increases in petrol and diesel rates directly affect transport costs, food prices, and household budgets. While the Centre has so far avoided large retail fuel price increases, analysts say prolonged suppression of prices could further strain OMC finances if crude prices remain elevated for a longer period.
