Petrol and diesel prices in India have increased again following a fresh fuel revision, with rates going up by nearly ₹4 per litre within days after consecutive hikes.
The latest increase comes as global crude oil prices surge due to the ongoing West Asia conflict, disruptions around the Strait of Hormuz and uncertainty in global oil supplies.
Economists have warned that rising fuel costs could increase inflation and push up transportation, logistics and food expenses in the coming months.
However, alongside concerns over rising prices, another debate has resurfaced: why do fuel prices in India not fall proportionately even when global crude oil prices decline sharply?
Crude oil once crashed — but fuel prices barely fell
The issue became especially visible during 2020 when global crude oil prices collapsed during the Covid-19 pandemic.
At one point, Brent crude fell below $20 per barrel — its lowest level in nearly two decades — after global demand crashed and a price war erupted between Saudi Arabia and Russia.
Despite crude prices dropping by nearly 66% within a year, retail petrol and diesel prices in India saw only marginal reductions.
Many consumers expected major relief at fuel stations, but pump prices remained relatively high compared to the fall in international oil markets.
Why fuel prices did not drop significantly
There are several reasons why cheaper crude oil does not automatically translate into sharply lower petrol and diesel prices in India.
1. High taxes on fuel
One of the biggest reasons is taxation.
Both the Centre and state governments earn substantial revenue from excise duty and VAT imposed on petrol and diesel. During periods when crude oil prices fall globally, governments often increase taxes instead of allowing full price reductions to reach consumers.
This helps governments protect revenues, especially during periods of economic stress.
2. Oil companies recover earlier losses
State-run oil marketing companies such as:
- Indian Oil Corporation
- Bharat Petroleum
- Hindustan Petroleum
often use periods of lower crude prices to recover losses incurred when prices were previously kept artificially low.
Retail fuel prices are not always revised daily in line with global movements, especially during politically or economically sensitive periods.
3. Rupee-dollar exchange rate matters
India imports the majority of its crude oil requirements, meaning payments are made largely in US dollars.
Even if crude oil prices fall internationally, a weakening Indian rupee can offset much of the benefit because importing oil becomes more expensive in rupee terms.
This means global oil price declines do not always fully translate into domestic fuel savings.
4. India uses average pricing mechanisms
Fuel pricing in India is also influenced by average international prices over a period of time rather than immediate daily spot prices.
This averaging mechanism smooths volatility but can delay the impact of both price increases and price reductions.
How Russian crude became important for India
Over the past two years, discounted Russian crude oil became a major cost cushion for India after Western sanctions were imposed on Russia following the Ukraine war.
India significantly increased imports of Russian crude because it was available at lower prices compared to many global suppliers.
This helped India:
- Reduce import costs
- Manage inflation pressures
- Protect oil marketing companies from severe losses
- Russian crude eventually became one of India’s largest oil import sources.
The irony of the US waiver system
A major geopolitical irony also emerged during this period.
Although India is a sovereign country buying oil from another sovereign country, global sanctions frameworks meant that the United States effectively had the power to “allow” or restrict aspects of that trade through sanctions waivers.
The US waiver permitted countries like India to continue importing certain Russian oil shipments without triggering broader sanctions-related complications involving banking, insurance and shipping systems.
Critics pointed out the unusual global reality where one country’s geopolitical decisions could influence another country’s energy imports and domestic fuel prices.
US extends Russian crude waiver again
The United States has now extended the sanctions waiver for another month, allowing Russian crude already loaded onto tankers to continue reaching international buyers.
The move is aimed at stabilising global oil markets as the Strait of Hormuz crisis disrupts supply routes and pushes crude prices higher.
The waiver helps Indian refiners because it:
- Reduces sanctions-related uncertainty
- Allows smoother imports from Russia
- Helps maintain cheaper crude supplies during a global supply crunch
Indian officials have maintained that the country purchases Russian oil based on commercial viability and energy security considerations regardless of US decisions.
However, industry experts say the waiver still makes the process operationally easier for refiners and shipping firms.
Why fuel prices may still rise further
Despite the waiver extension, crude oil prices remain elevated due to:
- West Asia tensions
- Strait of Hormuz disruptions
- Supply fears
- Rising shipping and insurance costs
India imports nearly 85–90% of its crude oil needs, making the country highly vulnerable to global energy market disruptions.
Analysts warn that if crude prices remain above $100 per barrel for a prolonged period, further petrol and diesel price hikes may become difficult to avoid.
What rising fuel prices mean for consumers
Fuel price increases affect far more than vehicle owners alone.
Higher petrol and diesel costs typically lead to:
- Increased transport charges
- Rising food prices
- Costlier logistics
- Higher airfares
- Inflationary pressure across sectors
This is why fuel prices are closely watched not only by consumers but also by policymakers, economists and businesses.
The latest fuel price hike has once again highlighted how domestic petrol and diesel prices in India are shaped by a complex combination of global crude markets, taxation policies, currency movements, geopolitical tensions and government strategy.
While consumers often expect fuel prices to fall when crude oil becomes cheaper internationally, domestic pricing mechanisms, taxes and fiscal considerations frequently prevent full benefits from reaching retail pump prices.
