The ongoing conflict between the US and Iran shows no signs of abating, prompting concerns over a potential increase in global oil prices that could reach unprecedented levels within the next quarter. Santosh Mehrotra, a former Economic Advisor to the United Nations, has warned that India’s current account deficit may widen by 0.3 percent of GDP with every $10 increase in oil prices.
Mehrotra anticipates a further surge in inflation, attributing this to insufficient government action regarding fuel and gold prices, stating that such measures come “too little, too late.” He pointed out that geopolitical tensions and supply disruptions are applying continuous pressure on the Indian rupee and impacting household finances.
Discussing the implications of rising oil prices, Mehrotra explained, “For every $10 increase in the international price of oil, it increases our current account deficit by about 0.3 percent of GDP. Simultaneously, that same $10 will have a roughly equivalent impact on the consumer price index.”
He noted that revisions to GDP and the consumer price index have already been made based on the current situation but do not take into consideration a prolonged conflict, which could exacerbate issues further.
One of the most pressing near-term risks is the potential disruption of essential supplies, including oil, gas, fertilizers, and helium, stemming from potential closures of the Strait of Hormuz. Mehrotra remarked, “All this is already having an impact on the lives of ordinary people,” citing shortages of industrial LPG that have affected sectors such as ceramics and restaurants. He added that the restaurant industry has seen a notable job decline due to insufficient LPG availability.
Critically, Mehrotra expressed concern regarding the government’s recent diesel price hike, suggesting it would further escalate inflation across sectors. “Diesel is an input into transportation costs… that will simply get absorbed by the truckers, but it will finally get passed on to the consumer,” he explained.
Over the past decade, Mehrotra noted that the government has enjoyed a “windfall gain of roughly 25 to 30 lakh crores,” owing to average oil prices of $50-60 per barrel. However, he emphasized that fiscal pressures continue due to “poor economic policies.”
He also highlighted the depreciation of the rupee, which has fallen from being valued under 90 rupees to around 95-96 rupees per dollar over the last three months, contributing further to inflationary pressures. “When the rupee falls against the dollar, you’ll have a situation where the RBI steps in… now the RBI has stopped doing that,” he noted.
Looking ahead, Mehrotra predicted that oil prices could easily reach $150 if the conflict persists, with spot prices for India already nearing $140. He asserted that Iran is “clearly winning the war” and unlikely to relent on sanctions or uranium enrichment, stating, “the rest of the world will continue to pay the price for the behavior of Israel on the one hand and the United States on the other.”
Published on May 16, 2026.
