Oil near $120, but India sees little inflation threat for now; Here's what Sitharaman said

The government does not expect a substantial impact on inflation from the recent surge in global crude oil prices triggered by the escalating conflict in West Asia, Finance Minister Nirmala Sitharaman said on Monday.

Responding to a question in parliament, Sitharaman said crude prices had been declining for most of the past year until the conflict in the region escalated on February 28.

The price of India’s crude oil basket rose from $69.01 per barrel at the end of February to $80.16 per barrel by March 2, she said.

“Given that India’s inflation is near the lower bound, the impact on inflation is not estimated to be substantial at this point,” Sitharaman said in a written reply to the Lok Sabha.

Oil prices have surged globally as fighting between Iran, Israel and the United States disrupts production and shipping routes in the Middle East, briefly pushing Brent crude near $120 per barrel before easing slightly.

The price of Brent crude, the international benchmark, surged past $114 a barrel after reopening on the Chicago Mercantile Exchange, about 23% higher than its Friday closing price of $92.69.

The spike followed production cuts by Iraq and Kuwait and earlier reductions in liquefied natural gas exports from Qatar as the war blocked shipments from parts of the Middle East.

India, the world’s third-largest oil importer, is highly exposed to energy price shocks because it imports more than 80% of its crude needs.

According to the Reserve Bank of India’s October monetary policy report, a 10% increase in crude oil prices could raise inflation by about 30 basis points, assuming full pass-through to domestic fuel prices.

However, the medium-term impact would depend on several factors including exchange rate movements, global demand and supply conditions, monetary policy transmission and the extent of indirect pass-through to domestic prices.

The retail inflation declined from 5.4% in 2023-24 to 4.6% in 2024-25, and further to 1.8% during April–January of 2025-26. Headline inflation stood at 2.75% in January, close to the lower bound of the central bank’s 2%-6% target band.

The government and the RBI have taken several steps to contain price pressures, including rate cuts totaling 125 basis points since February 2025, strategic sales of food grains, subsidised retail sales of staples under the Bharat brand, and fuel tax reductions.

The finance minister also pointed to fiscal measures such as income tax relief for individuals earning up to ₹12 lakh annually and GST rationalisation aimed at supporting household incomes.