Commodity Insights: Crude, Crops And Currency Raise Inflation Risks For India In 2026
· Free Press Journal
Into its seventh week, the ongoing tensions in the Persian Gulf region show no clear sign of abating. In less than 24 hours after the Strait of Hormuz was declared open, it was shut. As of today, no one knows when the risk of military action would decisively end and on what terms.
Visit esporist.org for more information.
It is clear that the damage inflicted by the military action will leave its impact on the global energy market in the months ahead. There is apprehension that global growth prospects may weaken. To be sure, early this year, the world crude oil market was projected to be in a state of surplus for 2026. No wonder Brent crude was hovering around the low 60s ($ per barrel).
Crude: Supply disruptions and price volatility
Crude: Things dramatically changed in March 2026. In the epicentre of the world’s energy supplies, the Middle East, production outages are real, damage to energy facilities and storage infrastructure is real, and the virtual closure of the strategic Strait of Hormuz is real. This has caused supply chain disruption of massive proportions.
Every day, 20 million barrels of crude oil (a fifth of global production) and massive quantities of natural gas, most of it destined for the Asia Pacific region, including India, pass through the Strait of Hormuz. More than half of the cargo is now rerouted, entailing longer voyage time, higher ocean freight, elevated insurance premiums, and significant delivery delays.
Brent prices have turned highly volatile, reflecting the fragility of the situation. Last Friday, it was trading at $98 a barrel. The closure of the strait on Saturday creates a huge upside price risk. Will the Strait of Hormuz open in April, even if partially? Will energy transit improve in Q2? No answers as of now. Worse, one cannot wish away the risk of a more severe and potentially longer-lasting supply disruption.
As a nation dependent on imported crude oil to the extent of over 85% of its consumption requirement, India will have to pay a heavy price. Come May, the government is sure to sharply hike petrol and gas prices. This will have a cascading effect on the economy, as crude oil is a ‘universal intermediate’ and its price impact will be across the board. Simply put, brace for energy inflation.
Crops: Weather risks and production concerns
Crops: The 2025-26 Rabi season harvest has started. Wheat, pulses (mainly chana/chickpea) and oilseeds (mainly rapeseed/mustard) are the key crops. The government’s production estimate released on February 11 is widely believed to have overstated wheat and mustard production by at least 10%. Heat wave and moisture stress have affected yields.
The government has admitted that the estimated numbers are tentative and subject to revision after conducting crop-cutting experiments. More often than not, crop production estimates are revised downward.
More critical than the size of the Rabi harvest is the fate of the upcoming Kharif 2026-27 planting and production. Major crops of the season include rice, coarse cereals, pulses, oilseeds, cotton, and sugarcane.
There is a high risk of El Nino, a weather phenomenon that reduces precipitation and inflicts dry conditions, in the second half of 2026 that coincides with Kharif planting (June-July) and harvest (September-October). India’s agriculture is still substantially dependent on the temporal and spatial distribution of the southwest monsoon. A bad monsoon can set our economy back.
Natural gas is the feedstock for synthetic fertilisers like urea, where our import dependence is high. The cost of imported fertilisers is skyrocketing following disruption to natural gas supplies from the Middle East. Rising input costs will push output prices higher, even as a bad monsoon can reduce harvest size, exacerbate the price risk, and result in food inflation.
Currency: Weak rupee adds to inflation pressure
Currency: This third C is already in a weakening trend, having recently fallen to an all-time low of 94 to a US dollar. A widening trade deficit due to heavy imports and an outflow of foreign capital has caused the rupee to weaken. A weak rupee raises the landed cost of imported goods. There are no signs on the horizon that the rupee will decisively reverse the downtrend anytime soon.
In other words, we are importing inflation with our unmitigated import of energy products, precious metals (gold and silver), vegetable oils, pulses, fertilisers, and many more goods.
Outlook and policy concerns
The coming months are going to be hugely challenging, especially for the common citizens. Inflation hurts the poor the most, and in our country, their number is uncomfortably large.
New Delhi must take cognisance of the looming weather risk and work on contingency plans to mitigate the inflation risk. Desperate situations usually lead to desperate policy interventions, and that can shake business confidence.
G. Chandrashekhar is a senior journalist specialising in commodity markets. Views are personal. He can be reached at: [email protected]