Quantum of solace

Oil’s up, finally. Not by much, happily

Petrol, diesel and CNG became pricier yesterday. The hike was anticipated from the time war started in Iran, and Hormuz Strait shut down, cutting off roughly 20% of world’s oil and gas supplies.

PM’s call for judicious use of these fuels, last Sunday, signalled a hike was imminent.

But the quantum of increase – Rs 3 for petrol/diesel, and Rs 2 for CNG – after far higher figures were bandied around, feels like you’ve dodged a bullet.

In percentage terms, this is by far the smallest hike in a non-producer country. Even major producers like US and UAE have hiked pump prices by over 40%. So, question is, is this a one-and-done hike, or the first step in a gradual adjustment?

The Hormuz question is far from settled, and benchmark prices remain over $100 a barrel. But there’s a positive sign. Iran on Thursday said it had allowed 30 vessels to exit the Strait.

That’s nowhere close to the pre-war average of 130 a day, but a big improvement. Enough to boost sentiment and cause a dip in crude prices. China’s position in talks with Trump – that it wants a lasting ceasefire – can also have a calming influence.

But Trump’s talk of “losing patience with Iran” might again spook the trade. Because resumption of hostilities will mean a complete blockade of Hormuz.

This uncertainty may be the reason why India has not raised pump prices massively now. If war ends, and Hormuz reopens, this small hike will be enough to recoup losses over the long term. It will also limit the inflationary shock of diesel.

Economists expect a marginal impact on inflation, of up to 0.15 percentage points. But if the status quo continues, crude remains over $100, more hikes and pain might be necessary. We’ll have to take this one day at a time.

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