Finance Minister Nirmala Sitharaman recently said that India is not ready for the sudden surge in global crude oil prices triggered by the escalating conflict in the Middle East, and added that the effect of higher crude prices on India’s inflation will remain near the lower end of the central bank’s tolerance band. Global oil prices have risen about 26% in early trade after Iran named Mojtaba Khamenei as the successor to his father, Supreme Leader Ayatollah Ali Khamenei. Due to such ongoing conflicts between the countries, the oil supplies have been completely disrupted.
The oil market has become unstable after the tensions escalated in the region following the joint military actions by the United States and Israel against Iran. Many Middle East oil producers have curtailed shipments as the tankers cannot safely pass through the Strait of Hormuz, one of the world’s key oil chokepoints. It has raised concerns about the disturbance to global energy supplies.
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In a written reply in the parliament, the government of India said that the indian basket rose from $69.01 a barrel to $80.16 a barrel by March 2, changing the current inflation trajectory, which gives policymakers some cushion against the external prices of oil. In addition, Sitharaman added that the medium-term impact of rising crude prices on inflation will depend on multiple factors, including exchange rate movements, the transmission of monetary policy, and the higher price of domestic fuel.
