Kolkata: As the war between Iran on the one hand and the US-Israel combine on the other rages on, analysts are saying oil risks can upset inflation projections. Prices of LPG have already gone up by Rs 60 for the domestic cylinders and Rs 114 for the commercial cylinders. That will have an impact on the inflation numbers going forward. The updated Consumer Price Index series was released earlier this year. In it the weightage of “Fuel & Light” that includes electricity, LPG, and other fuels has been revised to 17.66% of the retail inflation basket.
QuantEco Research estimates
The war is quickly resetting everything, say economists. “Despite the Feb-26 inflation reading coming less than 2 weeks since the month ended, the data already feels to be a bit dated, given the pace and intensity of escalation of war events in the Middle East,” mentions Quantico Research, an independent research firm, in a note. It has pointed out that now all attention has shifted to inflation trajectory beyond Feb, keeping in mind the outbreak of conflict in Middle East, and its impact on crude and natural gas prices.
“Natural gas has no immediate alternative routes to bypass the Strait of Hormuz. The near and immediate impact of this has already been seen, with the price escalation of Rs 60 being announced for domestic LPG gas cylinders. As per our estimates, this translates in 14-15 bps of direct impact on Mar-26 CPI estimate. There could be an added marginal impact of indirect costs too, with dining-out and processed food turning more expensive,” said the research agency. With the Strait of Hormuz blocked, the govt of India is exploring alternate routes.
MUFG estimates
“We estimate that every US$10/bbl increase in oil prices cuts GDP growth in India by around 0.1-0.2pp and raises inflation by around 0.2pp in India,” mentioned MUFG (Mitsubishi UFJ Financial Group) Research in a note.
QuantEco says that the impact of the energy price shock on CPI inflation will largely depend two factors. One: duration of the crisis and two, severity of disruption of energy supplies. “If the war continues over the next one-two months, its fallout while being severe in the very near term, could possibly be managed via internal buffers and policy decisions (excise duty cuts). But, under a worst-case scenario – characterized by a prolonged Middle East conflict, severe disruption to energy supplies and crude stabilizing at USD 100 pb – we estimate CPI inflation could rise by ~100 bps above our pre-war baseline estimate of ~4.0%,” added the agency.
Earlier Q1, Q2 inflation projection
While briefing after the Feb 2026 policy review, the Reserve Bank of India projected that retail inflation for Q1 and Q2 periods of FY27 will reach 4.0% and 4.2% respectively due to normalizing price pressures. At that time the Iran US conflict was not on the horizon. The war began on Feb 28 with US-Israel combine showering missiles on Teheran in which the supreme leader of Iran was killed with a few family members and a large number of senior army officers. However, during his speech, RBI governor repeatedly cautioned about challenges emanating from the external sector.
Oil price projections
As reported, prominent MNC brokerages such as Goldman Sachs and Bank of America, have raised their average oil price forecasts for 2026 as the military conflict continued without any signs of ebbing. As the Strait of Hormuz remains blocked, analysts think crude prices will remain elevated and supply restricted. The following are the projections of some brokerages for this year:
Goldman Sachs: Brent to average $75/barrel over 3 months and $71/barrel over 12 months
Citi: Brent to average $75/barrel in Q1, $78/barrel in Q2 and $68/barrel in Q3 of 2026
BofA: Brent to average $80/barrel in Q2
Macquarie: Apprehends crude prices rising to $150/barrel or above if the Strait of Hormuz remains closed for several weeks
UBS: Expects crude to move towards more than $100/barrel and towards $120+ if flows remain disrupted