Samiran Chakraborty, Chief Economist-India at Citi, believes there is still room to absorb higher crude oil prices, but inflation could become a concern if rising Israel-Iran tensions disrupt global supply chains.As per the Reserve Bank of India’s earlier estimates, an average 10% rise in oil prices could push inflation up by 30-40 basis points. However, Chakraborty noted that this link has weakened in recent years.
If crude stays in the mid-$60s range, he believes there could have been a chance for retail fuel price cuts later in the year. But at $75 a barrel, that may not be possible.
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Citi’s commodity strategists believe current oil prices already include a geopolitical risk premium of about $10 to $15 per barrel. So the markets are not ignoring the risks, and oil prices may stay within the $70 to $80 range in the near term, unless the situation becomes more serious.While there are risks such as a potential blockage of the Strait of Hormuz or an attack on Iran’s key export facilities, these are still seen as tail risks. Compared to the Russia-Ukraine situation a few years ago, Iran’s oil exports make up a smaller share relative to global spare capacity, which limits the potential for sharp price spikes.Chakraborty also said that from an inflation perspective, the focus will be on whether higher freight costs or delays in imported products could lead to price pressures.However, he noted that imported components make up a smaller share of India’s consumer price index, and domestic factors will have a bigger role in driving overall inflation.For full interview, watch accompanying videoCatch all the stock market live updates here
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