Oil prices near $106: India’s inflation risks in 2026

Markets take cues from Trump-Xi talks

Indian markets snapped a losing streak as investors tracked signals from the China-US talks in Beijing and the evolving conflict in West Asia. The broader risk appetite improved on hopes of a diplomatic path that reduces pressure on global energy supply chains. But the underlying macro message for India remained tied to oil, currency stability, and inflation. Oil is a direct channel into India’s import bill, and a second-order channel into transport costs and broader prices. In the same news cycle, India’s wholesale price inflation was reported to have jumped sharply, reinforcing sensitivity to commodity moves. That combination kept attention on policy responses and the rupee’s vulnerability.

Oil eases, but the Strait of Hormuz stays the main risk point

Crude prices cooled slightly after reports that some vessels were moving through the Strait of Hormuz. Oil had risen to $107 per barrel, before easing to around $105.6 after Iran state media said about 30 vessels had crossed the Strait in recent hours. Even with that reported movement, the flow remained far below the pre-war norm of roughly 140 vessels a day cited in market reports.

For India, the Strait of Hormuz remains a central risk because disruptions can lift freight and insurance costs, tighten supply, and worsen imported inflation. The episode also showed how quickly oil prices can swing on shipping updates, official statements, and security incidents. Separate market updates also placed Brent around $106 to $107 levels in early trade as investors watched the Trump-Xi summit and shipping security in the region.

Energy security enters US-China diplomacy

China’s role in Middle East energy flows has become part of the broader geopolitical negotiation. In market reporting, Trump said China wanted to buy oil from the United States, and the White House said Trump and Xi Jinping agreed on the need to keep the Strait of Hormuz shipping lane open.

For oil markets, the relevance is straightforward: any shift in China’s sourcing toward US crude can reduce its exposure to the Strait of Hormuz. But it also reframes energy security as a component of US-China relations, not just a commodity market story. India is watching these shifts closely because they can influence global crude benchmarks and the competitive dynamics of supply.

India raises retail fuel prices by over 3%

Against this backdrop, retailers increased India’s petrol and diesel prices by more than 3%, or about ₹3 per litre, in the first such hike in four years, according to the data cited from retail stores in Delhi. Diesel was reported at ₹90.67 per litre and petrol at ₹97.77 per litre in Delhi. The move represented a 3.4% increase in diesel and a 3.2% increase in petrol from ₹87.67 and ₹94.77 per litre, respectively.

The fuel hike was linked to efforts to recoup losses after the sharp spike in crude prices following US and Israeli attacks on Iran, when oil reportedly rose above $120 per barrel before easing back toward $100 to $105. State-run Indian Oil Corp., Hindustan Petroleum Corp., and Bharat Petroleum Corp. together control more than 90% of fuel stations, highlighting how price moves at public retailers can quickly translate into broader inflation expectations.

Inflation implications: direct and indirect channels

According to Madhavi Arora of Emkay Financial Services, the direct impact of the fuel price hike on inflation was estimated at about 15 basis points, while the indirect effect was described as much larger. Indirect effects typically show up through logistics costs, goods transportation, and pass-through into services.

Separately, RBI Governor Sanjay Malhotra was quoted as saying India may have to increase retail fuel prices if the West Asia conflict continues. That remark underlined the policy challenge: if crude remains elevated, the choice often narrows to absorbing losses in the system or passing costs on to consumers.

Russian oil waiver deadline and record inflows

India’s crude sourcing is also shaped by US policy. Bloomberg reported that India asked the US to extend its waiver on Russian oil imports. The authorisation was reported to run till May 16, after an initial green light in March and a widening of the waiver to limit rising oil prices with additional barrels.

The same report said Indian refiners have been importing Russian crude at record pace ahead of the waiver expiry. Daily inflows in May were reported at an unprecedented 2.3 million barrels a day, according to Kepler data cited in the coverage. Officials were also reported to have told Washington that supply remains a priority amid ongoing volatility.

Edible oil dependence adds to the import bill focus

Beyond crude, food oils remain a persistent external vulnerability. The Prime Minister urged Indians to reduce cooking oil consumption by 10%, noting that more than half of consumption is import-based. India was described as one of the world’s largest importers of edible oils, with the bill touching about $19 billion.

The figures were positioned alongside other major import heads: oil at $135 billion and gold at $12 billion. While edible oil is smaller than crude, its link to household inflation makes it politically and economically important, especially when global commodity prices are already volatile.

What India is watching in the Trump-Xi meeting

On geopolitics, Xi Jinping warned Trump that mishandling Taiwan could push US-China relations into a dangerous situation, keeping Taiwan as a key flashpoint. India is tracking the thaw in China ties alongside a reportedly frosty phase in US relations, given implications for trade, security alignments, and energy markets.

From an Indian lens, the immediate takeaway is not just the symbolism of the summit, but whether it supports stability in sea lanes and reduces the risk premium embedded in oil. As one discussion segment framed it, India needs the Strait of Hormuz to remain open.

Key numbers at a glance

Conclusion

The key thread across markets, diplomacy, and domestic policy was the same: oil remains India’s most immediate macro risk when West Asia tensions rise. With crude near $105-$107, shipping through the Strait of Hormuz still constrained, and the Russian oil waiver deadline approaching, investors will likely track official decisions and supply flows as closely as index levels. The next clear trigger is the May 16 waiver timeline and any follow-through from the Trump-Xi talks on keeping sea lanes open.