RBI flags possible fuel price surge amid ongoing West Asia tensions

The Reserve Bank of India (RBI) has warned that ongoing conflict in West Asia could lead to higher fuel prices for Indian consumers. RBI Governor Sanjay Malhotra stated that if global crude oil prices remain high, the government may have to pass on the increased costs. He made these remarks at the 12th High-Level Conference on the International Monetary System, organized by the International Monetary Fund and the Swiss National Bank.

Key Highlights

• RBI warns fuel prices may rise if West Asia conflict continues
• The government has absorbed most crude price increases so far
• Oil companies are losing nearly Rs 1,000 crore daily holding prices steady
• India's CPI inflation rose to 3.48 percent in April
• Import duties on gold, silver, and platinum have been increased

Impact of West Asian Conflict

Malhotra explained that the Indian government has so far absorbed much of the pressure from rising international oil prices. Petrol and diesel prices at the pump have stayed mostly unchanged, even as crude prices surged. The government has reduced duties and allowed only limited increases in regulated prices, such as gas. However, Malhotra indicated that these measures may not last if the conflict continues. He said it is only a matter of time before some price increases reach consumers if the situation persists.

Union Petroleum Minister Hardeep Singh Puri echoed these concerns. He noted that oil marketing companies are absorbing losses by keeping petrol, diesel, and LPG prices steady. Puri said that stocks of petrol, diesel, and LPG are currently adequate. Oil companies have increased LPG production to 55,000–56,000 tonnes, up from about 35,000 tonnes, to ensure supply. India holds crude stocks equal to around 76 days of demand.

Tensions near the Strait of Hormuz have disrupted global energy shipments. This has raised India's crude import costs and put pressure on inflation, the rupee, and the economy. Supply-chain disruptions from the blockade are starting to affect India, leading to higher inflation. Reports indicate oil companies are losing nearly Rs 1,000 crore daily, even as consumer fuel prices remain unchanged.

Economic and Policy Measures

India's trade and energy ties to the Middle East increase these risks. Malhotra noted that about one-sixth of India's imports and exports involve the region. Around 40 percent of remittances and fertilizer imports, and nearly 60 percent of gas supplies, are linked to West Asia.

India's consumer price index (CPI) inflation rose to 3.48 percent in April, up from 3.4 percent in March. This marks the first sign of price pressures from the Middle East crisis. Malhotra also highlighted fiscal consolidation efforts. The fiscal deficit, which reached 9.2 percent of GDP during the pandemic, has now dropped to about 4.3 percent.

The RBI's Monetary Policy Committee decided in April 2026 to keep the repo rate at 5.25 percent, maintaining a neutral stance. Malhotra said the RBI is ready to act if inflation pressures persist. He stressed that fiscal coordination is crucial during large supply shocks. The next monetary policy meeting is set for June 5.

The government has raised import duties on gold and silver from 6 percent to 15 percent, and on platinum from 6.4 percent to 15.4 percent, effective May 13. These steps aim to support the rupee and narrow the current account deficit. Prime Minister Narendra Modi has urged citizens to reduce fuel use, delay gold purchases, and limit foreign travel to help preserve foreign exchange reserves.

Also Read: India faces uncertainty over Russian oil imports as US waiver nears expiry

 CarBike 360 Says

​As geopolitical uncertainties persist in West Asia, the risk of volatile crude oil prices remains a key concern for India’s economic stability. The RBI’s warning underscores the need for close monitoring of inflation and supply dynamics. Moving forward, policy responses and global developments will play a crucial role in determining how sharply fuel prices impact consumers and the broader economy.