India and the United Arab Emirates have signed pacts on strategic defence cooperation, petroleum reserves and supply of liquefied petroleum gas, an Indian government official said on Friday.
The pacts were signed during Prime Minister Narendra Modi's visit to the UAE.
Meanwhile, India's state-run fuel retailers have raised petrol and diesel prices for the first time in four years by 3 rupees ($0.03) per litre, or more than 3%, according to dealers, to recoup some of the losses incurred due to higher global crude oil prices.
India - the world's third-biggest oil importer and consumer - is one of the last major economies to raise retail fuel prices following the disruption to shipping through the Strait of Hormuz by the war started by US-Israeli attacks on Iran.
State-run Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp, which together control more than 90% of India's 103,000 fuel stations, tend to set diesel and petrol prices in tandem.
A BPCL spokesperson confirmed the price increase at its retail outlets. Indian Oil and HPCL did not immediately respond to a request for comment.
Diesel in Delhi will cost 90.67 rupees a litre and petrol 97.77 rupees, reflecting increases of 3.4% and 3.2%, respectively, from 87.67 rupees and 94.77 rupees a litre.
Global oil prices spiked to more than $120 a barrel, before pulling back to around $100 to $105.
Shares of fuel retailers were down between 2.4% and 3.6% on Friday. Indian Oil Corp fell 2.4%, HPCL dropped 3.3% and BPCL was down 3.6% as of 0550 GMT.
The direct impact of the higher fuel prices would be muted at about 15 basis points on consumer price inflation, although the indirect impact will be larger, said Madhavi Arora, chief economist at Mumbai-based Emkay Global Financial Services.
"The hikes are not enough but could be the start of multiple staggered hikes," she said.
Fuel austerity steps
To curb fuel consumption and rein in oil import bills, New Delhi has rolled out austerity measures as policymakers brace for a prolonged energy shock.
On Sunday, Prime Minister Narendra Modi urged a spate of measures, including fuel conservation, work-from-home practices, and limits on travel and imports, as surging global energy prices put pressure on the country's foreign exchange reserves.
Some states have issued notices to government departments this week to restrict travel, avoid physical events and shift meetings online, while also asking them to work from home two days a week, with offices half-staffed.
India is likely to widen the measures to cover millions of employees across the federal government, state-run banks and public sector firms, signalling a system-wide tightening of expenditure and operations as financial risks mount.
The government did not respond to a Reuters email seeking comment.
Price increase to hit demand
Analysts say the increase is modest and leaves plenty of scope to raise prices further to compensate for revenue losses.
"India's petrol demand growth will be impacted, although the price hike is modest, but other fuel conservation steps such as work from home will dent demand growth," said Prashant Vashisth, vice president and co-head of corporate ratings at Moody's Indian arm, ICRA Ltd.
ICRA has revised its growth rate for gasoline use to 3%-4% this year compared with 5%-6% before the war, due to the price increase. For gasoil or diesel, ICRA expects growth to be flat from an earlier estimate of 2%-3%.
Analysts and opposition parties said state retailers had delayed raising prices during key state elections. The polls ended this month, with Modi's BJP winning two of four states and expanding its influence.
Oil ministry official Sujata Sharma said in April that higher oil prices after the war started caused Indian retailers to lose about 100 rupees per litre on diesel and about 20 rupees a litre on petrol.
In late March, Russia-backed Indian private refiner Nayara Energy raised its pump prices to mitigate some of its revenue losses from retail sales.
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