No hike in diesel prices for now: Oil Minister

New Delhi: India is trying for no further increase in the domestic price of diesel, Oil Minister Murli Deora said on Wednesday, as the government walks a tightrope between cutting subsidies and tackling public anger over inflation.

Last week, India deferred a ministerial panel meeting to discuss a possible increase in diesel and cooking gas prices.

Oil companies in India can set petrol prices but prices of diesel and cooking fuels continue to be fixed by New Delhi.

Indian oil firms last month month raised petrol prices by 5.6 percent, but increasing diesel prices could have a broader inflationary impact as farmers and manufacturers pass their higher costs along to consumers.

"We are trying to see there is no further price increase," Deora told reporters.

"If (global) oil prices go up then something has to be done. But we are doing our best to see that essential commodity prices don't increase."

Global crude prices have rallied, and oil steadied to $89.18 a barrel at 0432 GMT on Wednesday, after reaching a 27-month high of $92.58 on Monday.

Prime Minister Manmohan Singh's coalition government, already weakened by corruption scandals, must seek to balance the benefits of more market-related pricing with the immediate impact on inflation, already spurred by rising food prices.

Diesel accounts for one-third of fuel use and is crucial for transportation and the agriculture sector.

Tackling the structure of fuel subsidies would help stock investors value proposed share sales for state-run energy firms Indian Oil Corp and Oil and Natural Gas Corp .

The political tussle over diesel pricing comes as India and Iran try to end a row over payments for Iranian oil supplies.

Iran has offered a stop-gap plan for supplies for January, but a lasting solution to the row over how to pay for future supplies may take weeks.

Deora said he expected a solution soon.

India's central bank said last week payments to Iran could no longer be done through a longstanding clearinghouse system run by central banks, prompting fears India's $12 billion annual oil imports from Iran could be threatened.

Iran is India's second biggest crude oil supplier after Saudi Arabia, accounting for about 13 percent of its total crude oil imports.

The Indian move came within weeks of U.S. President Barack Obama visiting New Delhi. Washington praised the move, saying it would reduce what it sees is a misuse of funds by Iran to support its nuclear activity, which the West suspects has military aims.