As crude oil prices rise globally due to geopolitical tensions, Indian experts believe domestic inflation is unlikely to be impacted, thanks to the government’s fuel price policy and current market conditions. Despite Brent crude surging above $78 per barrel recently amid escalating tensions between Israel and Iran, economists say the country’s retail inflation, which hit a 75-month low in May 2025, is well insulated against external oil shocks.

According to leading economists, the government’s decision not to reduce fuel prices during the previous period of low crude prices is now acting as a shield. When global oil prices fell to around $60 per barrel, the Indian government chose to maintain existing fuel prices, thereby avoiding the transmission of price volatility to consumers.

Oil Price Trends and India’s Buffer

The Brent crude price fluctuated this week, initially climbing to above $78 a barrel before settling near $74 per barrel, reflecting fears of supply disruptions after Israel’s military actions against Iran. However, despite this upward pressure, fuel prices in India remain unchanged, a factor that plays a key role in buffering inflation.

Madan Sabnavis, Chief Economist at Bank of Baroda, noted that since the government had not reduced prices during the low-crude period, it now has room to absorb the impact of rising crude without passing it on to consumers. “When the crude oil price declined to $60 per barrel, the government did not pass the benefit to the consumers, hence there won't be any impact on inflation,” he said.

This policy of price retention has created a cushion not just for consumers but also for oil marketing companies (OMCs) and state governments, who share the margins from higher retail fuel rates. This approach has helped maintain macro stability and ensured that global crude oil shocks do not directly translate into domestic price pressures.

Consumer Prices Remain Stable

Supporting this view, Gaura Sengupta, Chief Economist at IDFC First Bank, affirmed that fuel prices have been stable for some time, and there are no immediate inflationary pressures expected due to rising oil. “The risk to inflation remains low, as fuel prices have not changed for some time now,” she said.

This stability in fuel prices is a key contributor to India’s current disinflation trend, with Consumer Price Index (CPI) inflation falling sharply in May 2025. Inflation data shows that India’s CPI has reached a 75-month low, mainly driven by soft food prices, and core inflation also remains under control.

Economists believe that even with short-term spikes in global crude oil prices, the buffer created by earlier price strategies ensures that retail fuel prices won’t be immediately affected. This decouples the global crude movement from India’s consumer inflation trajectory, at least in the near term.

Long-Term Risks Remain

However, some economists have cautioned that persistent geopolitical instability could change the outlook. Paras Jasrai, Associate Director at India Ratings and Research, warned that if the Israel-Iran conflict escalates further, and oil prices breach the $80 per barrel mark, it could reverse the current disinflationary momentum. “If the conflict between the two countries escalates further, then this could spring up crude oil price beyond $80/bbl, which can put a stop to the disinflationary trend that India has been witnessing,” he observed.

This highlights the conditional nature of the current inflation buffer. While the government has created space to absorb moderate oil shocks, sustained or extreme global price surges may eventually necessitate price adjustments at the consumer level, especially if the rupee weakens, or global financial conditions tighten.

Role of Oil Marketing Companies and Fiscal Policy

The oil marketing companies (OMCs) in India have also been playing a critical role in managing the price stability. Through a combination of controlled margins and price freezes, they’ve contributed to insulating the domestic market from international volatility. These companies have, in previous years, shared the fiscal burden of fuel price shocks in coordination with the central government.

Moreover, the Indian government’s fiscal policy has benefited from higher fuel taxes collected during periods of stable or rising prices. These revenues have helped fund subsidies, infrastructure investments, and social welfare programmes, contributing to macroeconomic stability.

However, in a prolonged conflict scenario, the cumulative pressure on OMCs, along with higher insurance and logistics costs, may require a revision of current price policies to balance both fiscal health and consumer protection.

Inflation and Monetary Policy Outlook

With rising oil prices India 2025 in focus, the Reserve Bank of India (RBI) is also closely monitoring the global situation. At present, the RBI’s monetary stance remains calibrated to support growth while keeping inflation within target bands. The recent softening in headline inflation allows the central bank some room to wait and watch, but further oil-related volatility could influence future interest rate decisions.

India’s retail inflation low gives policymakers some breathing room, but continued watchfulness is necessary, especially if oil prices sustain their upward trajectory or geopolitical risks expand to other oil-producing regions.

Conclusion

In conclusion, despite rising oil prices triggered by geopolitical tensions in West Asia, India’s inflation is expected to remain unaffected in the short term, owing to stable domestic fuel prices, a result of the government’s pricing policy during previous low-oil periods. The Brent crude price June 2025 spike is being absorbed by oil marketing companies and government margins, rather than being passed on to consumers.

However, the situation remains fluid. Should crude oil breach the $80/bbl mark and the Israel-Iran conflict deepen, inflationary risks could reemerge, breaking the disinflation trend that India is currently enjoying. For now, however, economists agree that fuel price stability India and judicious fiscal management are shielding Indian consumers from the latest round of global oil price volatility.

The Upcoming IPOs in this week and coming weeks are HDB Financials, ArisInfra Solutions, Influx Healthtech, Mayasheel Ventures, Eppeltone Engineers, Patil Automation, Samay Projects Services.

The Current active IPO are Oswal Pumps, Aten Papers, Monolithisch India.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst.