With the ongoing Russian invasion of Ukraine, prices of crude oil are on the volatile side too, besides the prices of important commodities like gold, aluminium, silver, platinum.
Also, Ukraine is a major exporter of agriculture products like edible oil, or cooking oil raw materials and with the navigation lines in Black Sea distrubed currently, the prices of basic food items in the country, like wheat and corn will severely be impacted, if the existing tensions between Russia and Ukraine do not simmer down.
According to a State Bank of India report, if the prices of crude oil shoot up to an average of $90-$100 per barrel from the current average price of about $74/barrel, the inflation would probably shoot up by 52-65 basis points.
Crude Oil Price Shoot Could Soar Inflation Worries
Two days back, crude oil prices surpassed the $105/barrel mark, for the first time since 2014, that is in over 7 years. The reason was worries that the Russia-Ukraine escalated crisis would lead to Western sanctions on Russia, which could meddle with the existing (already high) oil prices.
A SBI report states that the government could experience a revenue loss of Rs 95,000 to Rs 1 lakh crore if the prices of oil continue to rise amid aggravated geopolitical tensions.
“We are, however, hopeful of a significant course correction in oil prices going by trends”, added the report.
In only 9 months, the average price of Indian basket of crude oil has surged 33.5%, rising from $63.4/barrel in Apr 2021 to $84.67/barrel in Jan 2022.
A rise of every $10/barrel in the price of Brent crude would lead to an inflation spike of 20- 25 bps.
“If we assume that the reduced excise duty continues in the next fiscal and assuming petrol and diesel consumption grow around 8-10% in FY23, then the revenue loss of the government would be around Rs 95,000 crore to Rs 1 lakh crore for FY23”, added the report.
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