A sharp rise in global oil prices following joint US-Israel strikes on Iran is not only raising concerns over fuel costs in India but could also have implications for the country’s sugar sector through higher ethanol demand. With Brent crude nearing $80 per barrel, sustained high prices may make ethanol blending more attractive, potentially leading to greater diversion of sugarcane for fuel production even as geopolitical tensions keep energy markets on edge.
Brent crude moved close to $80 per barrel, while US crude futures climbed to $72.79, up from about $67 last Friday. Oil prices have risen around 9–10 per cent amid escalating tensions in West Asia, and market participants expect them to remain firm if the situation continues, The Times of India reported.
India imports nearly 88 per cent of its crude oil requirement. Higher global prices increase the country’s import bill and can add to inflationary pressure. At the same time, costlier crude strengthens the case for ethanol blending with petrol, a policy aimed at reducing dependence on imported oil. However, greater diversion of sugarcane for ethanol could influence domestic sugar availability if production does not meet earlier expectations.
Despite the surge in global oil prices, retail prices of petrol and diesel in India are unlikely to be raised in the immediate future, according to a PTI report. Sources cited in the report said the government is maintaining a calibrated approach that allows oil marketing companies to recover margins when international prices are lower, while shielding consumers when global rates rise.
Pump prices have remained unchanged since April 2022. During this period, state-run retailers such as Indian Oil Corporation, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd have absorbed losses during phases of high crude prices and gained when prices softened.
Under this framework, domestic fuel prices have stayed steady even during periods of global volatility. Sources added that unless crude prices see an unusually sharp and sustained spike, the current policy of protecting consumers is likely to continue. With assembly elections approaching in West Bengal, Tamil Nadu and Assam, the government is also cautious about any move that could trigger public concern over fuel costs.
Amid rising hostilities in the region, Petroleum Minister Hardeep Singh Puri held a review meeting with senior officials and executives of public sector oil companies to assess the availability of crude oil, LPG and petroleum products.
A significant portion of India’s crude oil and gas imports passes through the Strait of Hormuz, a key global shipping route that Iran has threatened to close following the strikes. Nearly one-third of global seaborne crude oil exports and about 20 per cent of liquefied natural gas shipments transit through this narrow channel.
Sources familiar with the matter said oil companies have adequate buffers to handle short-term price spikes. They pointed out that crude prices had touched $119 per barrel in June 2022 following Russia’s invasion of Ukraine, yet the sector managed the situation.
However, if disruptions continue and shipments are rerouted around the Cape of Good Hope, transit times and transportation costs could increase, along with freight and insurance expenses. That, in turn, may keep global oil prices elevated in the near term, with implications for fuel pricing and ethanol demand in India.
