Too soon to sound the ‘all clear’ on the risk of rising oil prices: Finance Ministry report

It is too soon to sound the ‘all clear’ on the risk of rising oil prices, even though the risk from the Israel-Iran conflict has receded following the ceasefire between the two countries, the Ministry of Finance said in a report.

According to the Monthly Economic Report (MER) for May 2025 released by the Department of Economic Affairs on Friday (June 27, 2025), the Israel-Iran war could have threatened India’s growth and fiscal outlook for the current financial year 2025-26.

However, the two countries agreed to a ceasefire earlier this month and oil prices have since fallen by about 6-7%.

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“There is an ample global supply of oil, but insurance costs and the perceived risk of potential closure of choke points might cause the landed price to rise,” the report warned. “Therein lies the risk to India. For now, the risk has receded.”

“But, it is too soon to sound the “all clear” for the rest of the year,” it added. “But, then, we have to get used to doing the balancing act or the high-wire act for some time to come. In this, India is on a better footing than many other nations.”

The Department of Economic Affairs report said that the Indian economy may experience “nervous but exciting times” in the days ahead.

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Overall, the report noted that with no major factors leading to an imbalance in the country’s macroeconomic aggregates, a subdued inflation rate and a “growth-supportive monetary policy stance”, India’s macroeconomic health is in a “relative goldilocks situation”.

While highlighting the 6.5% growth real GDP growth estimate 2024-25, the report said that the first two months of 2025-26 also point to resilience in economic activity.

“High-frequency indicators such as e-way bill generation, fuel consumption, and PMI indices point to continued resilience,” the report said. “Rural demand has strengthened further, supported by a healthy rabi harvest and a positive monsoon outlook.”

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Urban consumption, it added, was being bolstered by increased leisure and business travel, as seen from the rise in air passenger traffic and hotel occupancy.

However, it also pointed out that there are signs of softening of demand in areas like construction inputs and vehicle sales.