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Inflation in India likely to spike as global oil prices soar past $100 per barrel

India's Ethanol Blended Petrol (EBP) programme on track

The rising geopolitical tension after Russia announced a military operation in Ukraine has already pushed up global oil prices. On Thursday, Brent crude futures crossed $100 per barrel mark – the highest since 2014. On February 1, the price was less than $90 a barrel.

Higher oil prices will affect global recovery. India, which imports more than 80 per cent of its oil requirements, is carefully monitoring the situation as an increase in prices would have a direct impact on the country’s inflation even as New Delhi imports oil and gas imports from Russia is not much due to the high transportation costs. That apart, Russia supplies heavy crude which the Indian refineries cannot process.

Also read: Russia launches military operation in Donbass, Putin urges Ukrainian military to lay down arms

“Crude (is) one of the most important considerations, we will keep a watch,” Finance Minister Nirmala Sitharaman said, adding that the international situation is worrisome. India earlier stressed the need to find a diplomatic solution for the situation that is developing in Ukraine.

ICICI Securities said that higher crude oil prices will keep CPI inflation higher for longer unless the government sharply cuts excise duties on petrol and diesel to contain fuel inflation. This could prompt the Reserve Bank of India (RBI) to raise interest rates. It also said that Brent prices could remain above $100/bbl for much of 2022.

Barron’s, published by Dow Jones & Company said that Russia’s order to move troops into eastern Ukraine will bring economic pain in Moscow, throw Europe’s energy markets into turmoil, and soften the global recovery.