Bernstein Flags More Fuel Price Hikes If Crude Prices Stay Elevated

India may require further increases in petrol and diesel prices if crude oil remains near current levels, according to a strategy note released by brokerage firm Bernstein.

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The report said recent fuel price hikes are insufficient to fully offset the impact of rising global oil prices on the domestic economy and state-run oil marketing companies. Bernstein estimated that retail fuel prices may need to rise by another ₹11-12 per litre even if Brent crude moderates to around $100 per barrel.

The brokerage noted that current increases in pump prices cover only around 25% of the estimated losses being absorbed by oil marketing companies at prevailing crude levels.

Crude Rally Raises External Sector Risks

Brent crude prices have risen sharply since the escalation of geopolitical tensions involving Iran earlier this year. Bernstein said the increase in crude oil prices is placing pressure on India’s external balances, including the current account and foreign exchange reserves.

The report stated that India’s import cover has declined to 9.2 months, which it described as the weakest level since the period following the 2013 taper tantrum. Higher crude imports, increased fertiliser requirements and rupee weakness have added to the pressure on external accounts.

Bernstein also highlighted concerns around the Reserve Bank of India’s short forward dollar book, estimated at nearly $78 billion, including around $28.5 billion maturing within the next 12 months.

Forex Conservation Measures Highlighted

The brokerage said policymakers could consider additional steps aimed at preserving foreign exchange reserves if oil prices remain elevated through the coming months.

Among the measures discussed in the report were tighter norms under the Liberalised Remittance Scheme (LRS), including possible increases in tax collected at source (TCS), lower remittance limits and closer scrutiny of overseas spending.

The note also referred to the possibility of stricter work-from-home policies as part of fuel conservation efforts, particularly if authorities attempt to reduce discretionary fuel consumption.

Bernstein said the government may eventually need to prioritise essential imports such as fertilisers and food products over discretionary imports if oil prices remain high and monsoon-related risks intensify.

Inflation And Interest Rate Outlook

The brokerage warned that higher fuel costs and inflationary pressures could complicate the Reserve Bank of India’s monetary policy outlook.

Markets had recently increased expectations of softer interest rates, but Bernstein said sustained oil price pressure and concerns around rainfall patterns may limit room for further rate cuts.

The report also pointed to recent government actions, including fuel price increases, sugar export restrictions and measures related to non-deliverable forward positions, as signs of a broader strategy focused on protecting reserves and managing external vulnerabilities.

Impact Across Sectors

Bernstein noted that prolonged high oil prices could affect different sectors unevenly. The brokerage said a renewed shift toward remote working arrangements may weigh on commercial real estate, restaurants and retail activity.

At the same time, telecom and broadband providers could benefit from increased demand linked to higher remote-work usage.

Despite the concerns, the brokerage said India’s macroeconomic position remains stronger than during the 2013 period due to higher reserves, stronger banking stability and resilient domestic demand conditions.