Even as Brent crude has surged during the Strait of Hormuz disruption and fuel prices have climbed sharply across most economies, the centre has chosen to absorb a significant part of the pressure through excise duty cuts, export levies, and under-recoveries borne by oil marketing companies.
The government’s strategy probably marks a continuation of the approach adopted during the Russia–Ukraine war in 2022, when India became one of the few major economies to cut retail fuel prices despite elevated crude prices.
Between November 2021 and May 2022, the Centre reduced excise duties twice, lowering petrol prices by a cumulative ₹13 per litre and diesel by ₹16 per litre. That strategy has resurfaced during the ongoing Hormuz crisis.
Through this disruption, the Special Additional Excise Duty (SAED) cut on March 27, 2026 reduced petrol excise to three rupees a litre and took diesel excise to zero. The pass-through of higher crude was not made to the consumer; it was absorbed by the exchequer.
Government estimates that the March 2026 SAED cut alone may have cost the exchequer roughly ₹30,000 crore till May 18 of the current financial year.
At the peak of the crisis, when Brent crude briefly touched nearly $126 a barrel, India was estimated to be absorbing around ₹24 per litre on petrol and ₹30 per litre on diesel through a combination of tax cuts and OMC under-recoveries.
The burden-sharing model has involved both the government and public sector oil marketing companies. Between FY22 and FY24, PSU OMCs absorbed under-recoveries of around ₹24,500 crore to keep pump prices stable during the Russia–Ukraine conflict.
While in FY25 the OMCs once again incurred under recoveries of ₹40,000 crore on account of selling LPG at below cost price to nearly 33 crore users.
During the 2026 Hormuz disruption, OMCs are once again absorbing daily losses of anywhere between ₹650-₹700 crore, despite the price revisions.
To prevent domestic fuel supplies from being diverted overseas amid higher global prices, the government also imposed export levies alongside the excise cuts.
Officials argue the twin approach of cutting domestic duties while taxing exports has helped ensure Indian consumers benefit from the relief rather than refiners capturing windfall gains through exports.
The Centre has also sought to contrast its current approach with the oil bond regime followed during the UPA years. Government officials point out that instead of deferring the burden through off-budget liabilities, the present strategy involves direct on-budget fiscal absorption.
Since 2021, the Centre has redeemed over ₹1.3 lakh crore of UPA-era oil bond principal, in addition to substantial interest payments.
The policy intervention has helped India maintain one of the most stable fuel price trajectories globally during the recent oil shock.
Between February and May 2026, fuel prices in several economies rose anywhere between 20% and 90%, while India’s increase has remained limited to just over 4% till now — the first of the meaningful increases in nearly four years.
Officials argue the broader objective has been to protect household consumption and limit the inflationary impact of imported energy shocks on the wider economy.
By preventing a sharp spike in retail fuel prices, the government believes it has reduced second-round inflation pressures on transport, logistics, manufacturing and essential goods, even at the cost of a significant fiscal sacrifice.
