Madhavi Arora flags prolonged energy shock, warns of structural shift in global oil markets

Global energy markets are once again at the centre of macroeconomic anxiety, with Brent crude refusing to cool off from the $100 per barrel mark. Against this backdrop, Prime Minister’s appeal to reduce fuel consumption, promote public transport, and curb discretionary energy use has triggered a wider debate on whether the world is entering a more prolonged energy stress cycle than previously expected.

Speaking to ET Now, Madhavi Arora from Emkay Global, underlined that the current situation marks a structural shift rather than a short-lived disruption.

“Energy crisis more protracted than expected”


Arora noted that earlier expectations of a quick normalisation have not played out, with geopolitical tensions keeping supply risks elevated.

She said: “So clearly, this energy crisis has actually become more protracted than anybody (1:43). The earlier assumptions were that it probably would not last more than one or two weeks given the power equation between Israel and Iran. But clearly as we stand today, we understand that the world has also dipped into its energy reserves. If this remains strained for the next one or two months, we actually are looking at a global energy crisis which is for real.”

According to her, India’s response so far has been relatively muted compared to several Asian peers, many of whom have already imposed consumption-side adjustments through work-from-home advisories or activity moderation.
She added:

“India actually has been a laggard in terms of any kind of policy advisory on (2:14) of consumption of fuel. If you look at Asian economies, most of the Asian countries which are also a big absorber of global energy have already put these (2:23) in order in terms of say work from home or curtailing economic activity in some form or the other. India also did that but largely on a commercial basis. We also have not passed on any kind of pain to consumer in any form whether it is monetarily or otherwise.”

Policy direction: focus shifts to external balance
The conversation around fuel conservation, she suggested, is closely tied to India’s broader external sector vulnerabilities, particularly the current account and capital flows.

Arora said: “Absolutely because see, we are an emerging economy in the end. We are dependent on the vagaries of the west, vagaries of the market, global cycles. And the policy makers, Reserve Bank of India specifically has been intervening in the past one-and-- half years to manage the currency, to manage the balance of payment crisis which was recently was not even a current account crisis but actually crisis where we were lurching for foreign flows and they were not necessarily India as a market.”

She cautioned that the risk is no longer confined to the current account alone.

“As we stand today, now we are sitting with not only a current account pain but also a capital account pain… So, to that extent policy focus on managing forex is something which I thought was needed… clearly the balance of payment crisis could be for real… we are probably looking at a BOP deficit of $60-70 billion in FY27.”

Reserves under scrutiny amid forward book concerns
On India’s foreign exchange buffer, Arora pointed out that headline numbers do not fully reflect underlying exposure once forward positions are adjusted.

“So, see, given the forward book that we know of until recently, the FX reserves are obviously not in the leagues of… you are talking about total foreign exchange reserves… we have to adjust… base for our foreign exchange but if you specifically look at FCAs, they are anyway tracking below five (5:42).”

Fuel prices: Rs 7–10 hike scenario on the table
A key concern remains the pass-through of higher crude prices into domestic fuel prices and inflation. Oil marketing companies, she noted, are currently absorbing significant under-recoveries.

“So, the current under recoveries that OMCs are bearing after government having taken a portion of the pain via excise cut is somewhere close to around Rs 17 per litre on a blended basis.”

She added that a gradual adjustment remains the most likely policy route rather than an abrupt price shock.

“So, we are looking at somewhere close Rs 7 to Rs 10 blended price increase in petrol and diesel maybe in the next month or so or under one month rather.”

On the extent of pass-through possible, she reiterated:

“Close to Rs 7 to Rs 10… there is still scope to increase the prices further if the government really wants to pass it on to consumers fully.”

Fiscal strain building from energy shock
Arora also flagged that the government has already absorbed a large part of the shock through excise adjustments and subsidy pressures.

“They are also running a cost of around 1.3 lakh crores by taking the excise cut on their books… So, I think on an overall basis on an annualised level, government fiscal book is already strained by close to around two lakh crore.”

Outlook
With crude prices staying elevated and geopolitical risks unresolved, policymakers appear increasingly focused on balancing inflation control, fiscal stability, and external sector resilience. While the current measures remain largely advisory, market participants are now watching closely for whether informal appeals gradually evolve into more structured policy tightening if the energy squeeze persists.