Let retail fuel prices drop to support India’s growth

Crude oil has been on a downtrend for months. The commodity has lost about a fifth of its value so far in 2025 amid an expected demand slump. Oil-guzzlers China and the US are engaged in a trade war that will probably slow economic activity down on both sides of the Pacific and turn oil usage sluggish. US President Donald Trump’s tariffs are likely to hit other economies too, with a transition to clean energy another offtake dampener. 

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For much of the global economy, signs of a glut spell good news, as cheaper oil would temper inflationary pressures. This is especially so in countries that are heavily reliant on imports, like India. All factors weighed in, crude prices could fall further, even to half the $100 target that Opec was aiming for before its shift in stance.

How long might Opec’s easy-oil policy last? This is far from clear. After all, it means a revenue squeeze for all members. By Saudi Arabia’s past record as the cartel’s enforcer of output quotas designed to boost market prices, Riyadh may only be trying to rap on the knuckles a few quota violators—like Kazakhstan and Iraq, among other suspects—so that they follow the club’s rules. The kingdom can afford a brief dip in income, while its hard-up Opec partners cannot. 

If this is Riyadh’s game, then such cheap oil may prove transitory, with tight supply likely to be back in play once quota-busters have been taught a lesson. 

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Given the bout of geopolitical flux that the world is going through, however, Opec’s shift might have another strategic purpose. Trump, who has been asking for cheaper oil, is due to visit Saudi Arabia, which is looking for favourable deals. Crude at its current level could be wielded as a double-edged lever. It helps moderate US inflation, no doubt, but if oil falls further, it would deal a blow to America’s high-cost producers of shale oil—a ploy used by Opec back in 2014. This would go against Trump’s drill-baby-drill agenda, although the same dynamic means Opec cannot tighten its spigot to effect a price spike without a shale-supply counter response. 

If Saudi-US ties improve and deals are struck, a mutually beneficial oil-price band of $60-80 per barrel could sustainably prevail. Of course, instability in West Asia could wreck this expectation; volatility could potentially arise from Israel’s Gaza policy and Iran’s stand-off with Tel Aviv and Washington. Exploratory patch-up parleys aimed at a nuclear pact have been held between the US and Tehran, but these have yielded little. 

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Even if such risks are thrown into the calculus, the likelihood that powerful players favour a benign phase of oil prices is looking up. Weak global demand makes such a scenario all the more likely.

That prospect affords India an opportunity to let retail fuel prices drop so that the central bank can keep a tighter lid on inflation, thus enabling it to cut its policy rate of interest more confidently in support of economic growth. A decade ago, India’s government used a global phase of cheap oil to fill its coffers by raising taxes. In today’s context of growth risks, New Delhi should let it show in people’s fuel bills.