New Delhi, March 2 International oil prices rose by about 9% following attacks by the US and Israel on Iran, and retaliatory strikes by Tehran, but retail petrol and diesel prices in India are unlikely to increase in the near term, sources said.
Brent crude, the global benchmark, climbed close to $80 per barrel, while US-traded crude rose by 8.6% to $72.79, up from around $67 on Friday.
For India, which imports 88% of its crude oil requirement, which is then refined into fuels like petrol and diesel, higher global prices translate into a larger import bill and potential inflationary pressures.
However, retail fuel prices are not expected to be raised immediately, as the government continues to follow a policy of allowing companies to maintain margins when international prices are low and providing cushioning for consumers when rates rise, sources said.
Retail petrol and diesel prices have been at a standstill since April 2022, with fuel retailers like Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) absorbing losses when crude prices are high and making profits when rates are low.
This means that when global fuel prices went up in response to elevated crude prices, prices remained stable in India. And when crude prices softened, prices in India remained unchanged.
The government wants to continue to protect consumers, and this policy will continue unless there is a significant spike in crude prices, they said.
With upcoming assembly elections in key states like West Bengal, Tamil Nadu, and Assam, the government wants to avoid anything that could give the opposition an advantage.
As military conflict in the Middle East escalated, Oil Minister Hardeep Singh Puri on Monday reviewed the situation on crude oil, LPG, and other petroleum products with senior officials from his ministry and public sector companies.
India imports 88% of its crude oil needs and roughly half of its natural gas requirement. These mostly come through the Strait of Hormuz, which the Iranian authorities have threatened to close following attacks by the US and Israel.
"We are continuously monitoring the evolving situation, and all steps will be taken to ensure the availability and affordability of major petroleum products in the country," the ministry said in a post on X.
Following the US and Israeli attacks on Iranian government, military, and nuclear facilities, Iran warned against shipping through the strait and insurers withdrew coverage, effectively halting tanker movements.
"They (oil companies) have enough cushion to sustain such a price spike," a source with direct knowledge of the matter said. "We have seen prices rise to $119 per barrel in June 2022 following the Russia's invasion of Ukraine. That year they had nominal profits, but in FY24 they posted a record Rs 81,000 crore profit."
This year, the three companies have posted Rs 23,743 crore in profit for the December quarter alone.
Crisil Intelligence Director Sehjul Bhatt said developments in the Middle East could increase pricing and procurement risks for crude oil and liquefied natural gas (LNG), posing significant challenges for India. India meets roughly half of its gas supply through imports.
"If geopolitical issues ease, we expect prices to average USD 65-70 in CY2026, but prolonged conflict could push prices even higher," Bhatt said. "While Iran supplies 4.5-5% of global oil, the main concern is disruption at the Strait of Hormuz, which is vital for almost half of India's imports of both these commodities, thus increasing vulnerability."
If disruptions persist, shipments may be rerouted via the Cape of Good Hope, lengthening transit times and increasing the cost, along with rising freight and insurance premiums.
"Sustained disruptions would keep crude prices elevated and tighten LNG availability, underscoring the need for strategic planning to protect India's energy security," Bhatt said.
The United States and Israel launched military strikes on targets in Iran over the weekend. Tehran retaliated with missiles and drones aimed at Israel and countries hosting US forces, including the United Arab Emirates, Qatar, Kuwait, Bahrain, Iraq, Jordan, and Saudi Arabia.
Media reports suggest the conflict has effectively closed the Strait of Hormuz, a key conduit for global energy flows. Roughly one-third of the world's seaborne crude oil exports and about 20% of liquefied natural gas shipments transit the narrow waterway.
India – the world's third-largest oil importer – imports roughly half of its oil needs through the narrow Strait.
"This (closure of Strait of Hormuz) raises the risk of further disruptions in the Red Sea and across the wider Middle East," Moody's Analytics said.
"Airspace closures have compounded the strain, affecting passenger travel and cargo flows through one of the world's most important trade corridors."
Wood Mackenzie said oil prices could exceed USD 100 per barrel if tanker traffic through the Strait of Hormuz is not swiftly restored.
The disruption, it said, creates a dual supply shock. Current exports through the strait are suspended, while additional OPEC+ volumes and most of OPEC's spare capacity – typically used to balance the global oil market – are inaccessible as long as the waterway remains closed.
"This (closure of Strait of Hormuz) raises the risk of further disruptions in the Red Sea and across the wider Middle East," Moody's Analytics said.
"Airspace closures have compounded the strain, affecting passenger travel and cargo flows through one of the world's most important trade corridors."
Wood Mackenzie said oil prices could exceed USD 100 per barrel if tanker traffic through the Strait of Hormuz is not swiftly restored.
The disruption, it said, creates a dual supply shock. Current exports through the strait are suspended, while additional OPEC+ volumes and most of OPEC's spare capacity – typically used to balance the global oil market – are inaccessible as long as the waterway remains closed.