Potential Impacts of the Oil Price Shock on India

The document examines how India is managing an energy price shock resulting from conflict in Iran. To control inflation, the Indian government has absorbed costs by cutting fuel excise duties and increasing fertilizer subsidies, costing an estimated 590 billion Indian rupees between March and May 2026. The brief warns that continued shock absorption may drain budgets for grid modernization and renewable energy, while passing costs to the public would disproportionately harm low-income households through indirect inflationary effects on food and transport.

• India faces significant energy vulnerabilities due to its reliance on the Strait of Hormuz, through which 45% of its imported crude oil and nearly 90% of its imported LPG pass.
• Between March and May 2026, the Indian government spent approximately 590 billion Indian rupees to manage price shocks, consisting of 140 billion rupees in lost fuel tax revenue and 450 billion rupees in additional fertilizer subsidies.
• The government's strategy of absorbing price shocks risks reducing public investment in critical energy transition infrastructure, including transmission infrastructure, grid modernization, and renewable energy deployment.
• If the government stops buffering oil price shocks, the transport sector is among the most affected due to its petroleum reliance, while the chemicals and plastics sectors are highly sensitive as they use oil as feedstock.
• The economic burden of passing on fuel price increases is uneven: while direct costs affect middle- and upper-income households, lower-income households are more vulnerable to indirect effects via food prices, electricity, and public transport.
• Analysis of subsidy distribution using the Kakwani index shows that gasoline subsidies are regressive (-0.034), whereas subsidies for food and beverages (+0.128), public transport (+0.080), and electricity (+0.027) are progressive.
• Persistent high energy prices could increase the cost of capital for clean energy investments if inflationary pressures lead the Reserve Bank of India to maintain higher interest rates.

APA

AGARWAL, V., JOSE, E. T., CHOLAYIL, N., & SENGUPTA, R. (2026). Potential Impacts of the Oil Price Shock on India. World Resources Institute. https://files.wri.org/d8/s3fs-public/2026-06/26_a4_iran-briefs_india_web.pdf

Chicago

AGARWAL, VARUN, EVELIN TREESA JOSE, NIVEDITA CHOLAYIL, and RAJIT SENGUPTA. Potential Impacts of the Oil Price Shock on India. World Resources Institute, 2026. https://files.wri.org/d8/s3fs-public/2026-06/26_a4_iran-briefs_india_web.pdf.

Wikipedia

{{cite report |last1=AGARWAL |first1=VARUN |last2=JOSE |first2=EVELIN TREESA |last3=CHOLAYIL |first3=NIVEDITA |last4=SENGUPTA |first4=RAJIT |title=Potential Impacts of the Oil Price Shock on India |publisher=World Resources Institute |date=June 2026 |url=https://files.wri.org/d8/s3fs-public/2026-06/26_a4_iran-briefs_india_web.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{agarwal2026potential, author = {AGARWAL, VARUN and JOSE, EVELIN TREESA and CHOLAYIL, NIVEDITA and SENGUPTA, RAJIT}, title = {{Potential Impacts of the Oil Price Shock on India}}, institution = {World Resources Institute}, year = {2026}, month = jun, url = {https://files.wri.org/d8/s3fs-public/2026-06/26_a4_iran-briefs_india_web.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }