Oil companies facing losses of Rs 24-30 per litre
When the arteries of global oil trade constrict under the pressure of geopolitical conflict, nations dependent on imported energy must choose between fiscal discipline and social stability. India, drawing on more than 90 percent of its crude from abroad, chose this week to absorb a Rs 7,000 crore revenue loss by slashing excise duties on petrol and diesel — a swift, costly act of economic self-preservation as crude prices neared $119 per barrel amid disruptions to the Strait of Hormuz. The decision reflects a government caught between the imperatives of protecting consumers, sustaining oil companies, and navigating a global energy order it cannot control.
- Iran-linked conflict has effectively closed the Strait of Hormuz, sending crude prices surging toward $119 per barrel and threatening to destabilize India's fuel supply chain almost overnight.
- Oil marketing companies were absorbing losses of up to Rs 30 per litre on diesel and Rs 24 on petrol — a bleeding that, left unchecked, risked fracturing the domestic fuel market.
- Private retailer Nayara Energy had already raised pump prices, triggering dealer alarm and early signs of supply curtailment, signalling that market stress was no longer theoretical.
- The government responded by eliminating diesel excise duty entirely and cutting petrol duty to Rs 3 per litre — a dramatic reversal of the increases imposed less than a year ago in April 2025.
- Brent crude has eased slightly to around $107 following diplomatic signals from Washington, but analysts warn prices could still climb toward $150 if tensions escalate, leaving India's relief measures potentially short-lived.
India moved swiftly this week to cut the tax burden on fuel, reducing the special additional excise duty on petrol to Rs 3 per litre and eliminating it entirely on diesel — effective immediately. The previous structure had stood at Rs 13 on petrol and Rs 10 on diesel. In surrendering Rs 7,000 crore in revenue over just two weeks, the government signalled how urgently it felt compelled to act.
The trigger is a global oil market in upheaval. Conflict involving the United States, Israel, and Iran has choked the Strait of Hormuz, pushing crude prices near $119 per barrel. For India — the world's third-largest oil importer, dependent on imports for over 90 percent of its crude — the shock is immediate and severe. Petroleum Minister Hardeep Puri publicly acknowledged that oil companies were facing losses of roughly Rs 24 per litre on petrol and Rs 30 on diesel, losses threatening to destabilize the domestic market.
The stress was already visible on the ground. Nayara Energy, India's largest private fuel retailer with over 7,000 stations, had raised prices days earlier — Rs 5 on petrol, Rs 3 on diesel — prompting dealer protests and reports of curtailed fuel supplies. The government's duty cuts are designed to arrest that spiral, preventing further retail price hikes while offering oil companies some breathing room.
Some relief has arrived from diplomacy: Brent crude fell to around $107 after President Trump signalled progress in Iran talks and announced a pause on strikes targeting energy infrastructure. Yet analysts caution that prices are likely to remain elevated between $85 and $110 per barrel, with a further escalation scenario pointing toward $150 — a level that would test India's import-dependent economy severely.
The reversal is striking in its own right. Less than a year ago, in April 2025, the government had raised duties by Rs 2 per litre on both fuels. That the same administration has now moved so sharply in the opposite direction speaks to how profoundly the global situation has shifted. For now, India has chosen to absorb the fiscal cost of stability — though how long that calculus holds depends on forces far beyond its borders.
India's government moved swiftly this week to cut the tax burden on fuel, slashing the special additional excise duty on petrol to Rs 3 per litre and scrapping it entirely on diesel. The changes took effect immediately, a dramatic reversal from the duty structure that had been in place—Rs 13 per litre on petrol and Rs 10 per litre on diesel. In a single stroke, the government surrendered Rs 7,000 crore in tax revenue over just two weeks, a staggering sum that reflects how urgently officials felt the need to act.
The backdrop is a global oil market in upheaval. Tensions between the United States and Israel on one side and Iran on the other have pushed crude prices to near $119 per barrel at their peak, and the conflict has effectively choked off the Strait of Hormuz, one of the world's most critical shipping lanes for oil. India, the world's third-largest oil importer, depends on imports for more than 90 percent of its crude needs. When global prices spike, Indian consumers and oil companies feel the shock immediately. Petroleum and Natural Gas Minister Hardeep Puri acknowledged the scale of the problem on social media, noting that oil companies were facing losses of approximately Rs 24 per litre on petrol and Rs 30 per litre on diesel—losses that threatened to destabilize the domestic fuel market.
The timing of the government's move is telling. Just days before the duty cuts, Nayara Energy, India's largest private fuel retailer and majority-owned by Russia's Rosneft, had raised petrol prices by Rs 5 per litre and diesel by Rs 3 per litre. The company operates more than 7,000 fuel stations across the country. Dealers responded with alarm, warning that the price increases could dampen demand and signalling the possibility of protests. Some reported that fuel supplies had already been curtailed in recent days, a sign of the stress rippling through the supply chain.
The government's intervention is designed to ease that pressure. By cutting excise duties, officials hope to prevent further retail price increases and shield oil marketing companies from mounting losses. The move also comes as crude prices themselves have begun to ease slightly—Brent crude fell to around $107 per barrel in early Friday trading after U.S. President Donald Trump signalled progress in talks with Iran and announced a temporary pause on strikes targeting energy infrastructure. Yet analysts caution that even if diplomatic tensions ease, crude prices are likely to remain elevated, with forecasts suggesting a range of Rs 85 to $110 per barrel in the near term. If the conflict escalates further, prices could spike toward $150, a scenario that would test India's import-dependent fuel economy to its limits.
The broader context matters too. This is not the government's first intervention in the excise regime. In April 2025, officials had actually raised duties on petrol and diesel by Rs 2 per litre each. The reversal underscores how dramatically the global situation has shifted in less than a year. The government has also made adjustments to aviation turbine fuel duties, imposing a special additional excise of Rs 50 per litre while providing exemptions in other areas to offer some relief to the aviation sector. These moves form part of a comprehensive revision to the central excise framework notified on March 26, 2026.
What remains uncertain is how long this relief will last. If crude prices continue to climb, the government may face pressure to cut duties further or find other ways to shield consumers and companies from the volatility. The Strait of Hormuz remains a chokepoint, and geopolitical tensions show no sign of fully resolving. For now, India has chosen to absorb the cost of lower tax revenue in hopes of stabilizing a market under siege.
Citas Notables
Government has taken a huge hit on taxation revenues to ensure very high losses of oil companies at this time of sky high international prices are reduced— Petroleum and Natural Gas Minister Hardeep Puri
Total revenue foregone on petrol and diesel duty slash is Rs 7,000 crore in a fortnight— CBIC Chairman Vivek Chaturvedi
La Conversación del Hearth Otra perspectiva de la historia
Why did the government move so suddenly on the excise duties? Was there a specific trigger?
The immediate trigger was the oil company losses becoming unsustainable. When Nayara Energy raised prices just days before, it signalled that the market was breaking. The government had to act to prevent a cascade of price increases that would ripple through the entire economy.
But Rs 7,000 crore in foregone revenue over two weeks—that's enormous. How does the government justify that kind of fiscal hit?
They're betting that preventing a fuel price spiral is worth more than the tax revenue. If oil companies collapse or if retail prices spike sharply, the political and economic damage would be far worse. It's a short-term sacrifice for stability.
The Strait of Hormuz closure—how much of India's oil actually flows through there?
India imports over 90 percent of its crude, and a huge portion of global oil moves through that strait. When it's effectively closed, even countries that don't buy directly from Iran feel the shock through higher global prices. India has no choice but to pay those elevated prices.
So the government is essentially subsidizing oil companies and consumers by cutting its own revenue?
Exactly. It's a transfer of the burden from oil companies and consumers to the government's budget. Whether that's sustainable depends on how long crude prices stay elevated and whether the geopolitical situation stabilizes.
What happens if crude prices keep climbing toward $150?
Then the government faces a choice: cut duties even further and lose more revenue, or let prices rise at the pump and face public anger. Either way, it's a squeeze with no easy exit.
Is there any sign that the conflict might ease soon?
Trump has signalled talks with Iran and paused strikes, which brought prices down slightly. But the Strait of Hormuz remains disrupted, and analysts don't expect crude to fall back to pre-conflict levels anytime soon. The relief may be temporary.