Introduction#
Analysts at ANZ Research have indicated that India’s ability to handle a prolonged increase in oil prices may be tested, even though the country currently enjoys a strong economic position.
Current Economic Landscape#
India is entering this latest energy price surge with a backdrop of high growth and low inflation. This situation is notably different from the period during the Russia-Ukraine conflict, when inflationary pressures were already building. ANZ economists suggest that while the current economic indicators are positive, sustained high oil and gas prices could strain financial resources across various sectors, including oil marketing companies (OMCs), the government, and households.
Impact on Oil Marketing Companies#
Oil marketing companies play a crucial role in managing the impact of rising oil prices. They often keep fuel prices steady to shield consumers from sudden price hikes. However, their capacity to absorb these costs is limited. ANZ estimates that if crude oil averages $80 per barrel in fiscal year 2027, OMCs could face losses of approximately 80 billion rupees (around $960 million) each month if pump prices do not change. Should prices rise to $100 per barrel, these monthly losses could escalate to about 241 billion rupees.
Government and Household Pressures#
The three largest OMCs reported combined profits of about 720 billion rupees over the last four quarters, which could cover losses for roughly nine months at $80 oil, but only about three months at $100. Additionally, higher energy costs may lead to increased government spending on subsidies for fertilizers and cooking gas, potentially adding 0.2% to 0.5% to the country’s GDP. This could further strain household savings and widen the current account deficit, increasing currency volatility.
Future Outlook#
ANZ anticipates that oil prices will average around $85 per barrel in 2026. While this may slightly slow economic growth and elevate inflation, the situation is expected to remain manageable for the Indian economy.