Petrol and Diesel Prices in India: What to Expect in Coming Weeks

Petrol and Diesel Prices in India: What to Expect in Coming Weeks

Every morning, millions of Indians check the fuel price boards at their local petrol pumps with increasing anxiety. Since Operation Epic Fury launched on February 28, 2026, and Iran closed the Strait of Hormuz, Brent crude has surged from $67 to $120 per barrel. The question on everyone's mind is: how much will I pay for petrol and diesel in the coming weeks?

This article explains the complex mechanics of fuel pricing in India, breaks down the numbers at current crude prices, examines what the government can and might do, and provides a realistic forecast for April and May 2026.

How Fuel Prices Work in India

India officially deregulated petrol prices in June 2010 and diesel prices in October 2014, allowing oil marketing companies (OMCs), Indian Oil Corporation (IOC), Bharat Petroleum (BPCL), and Hindustan Petroleum (HPCL), to set prices based on international benchmarks.

In theory, fuel prices in India are revised daily based on a 15-day rolling average of international crude oil and product prices, adjusted for the rupee-dollar exchange rate. This system, called the Dynamic Fuel Pricing Mechanism, was introduced in June 2017.

In practice, however, the government exercises significant behind-the-scenes influence over fuel pricing. During politically sensitive periods, OMCs have been known to freeze price revisions for weeks or months, absorbing losses on their balance sheets. These losses are eventually recovered either through future price increases or through government compensation.

The Anatomy of Your Fuel Bill

Understanding why Indian fuel prices are so high requires looking at the breakdown of what you pay per liter.

Before the Iran crisis, the approximate breakdown for a liter of petrol in Delhi (at around Rs 100/liter) was:

• Base price of crude oil + refining cost: Rs 40-45
• Central Excise Duty: Rs 19.90
• State VAT: Rs 17-20 (varies by state)
• Dealer commission: Rs 3.5-4
• Transportation and other costs: Rs 5-7

The critical point is that government taxes (central excise plus state VAT) account for approximately 55-60% of the retail price of petrol in India. This is one of the highest tax burdens on fuel in any major economy.

For diesel, the tax component is somewhat lower (approximately 50-55% of retail price) but still substantial. Diesel is taxed less than petrol because it is considered essential for agriculture and freight transport.

What $120 Crude Means for Indian Pumps

At $67 per barrel, the base cost of crude oil translated to approximately Rs 40-45 per liter of finished petrol. At $120 per barrel (assuming a rupee-dollar exchange rate of approximately Rs 86), the base cost roughly doubles to Rs 70-80 per liter.

If taxes and other costs remain unchanged, the full pass-through price of petrol would be:

• Delhi: Rs 130-140 per liter (from Rs 100)
• Mumbai: Rs 140-150 per liter (from Rs 106, higher due to higher state taxes)
• Chennai: Rs 135-145 per liter (from Rs 102)
• Kolkata: Rs 135-145 per liter (from Rs 104)

For diesel, the projections are equally alarming:

• Delhi: Rs 120-130 per liter (from Rs 90)
• Mumbai: Rs 130-140 per liter (from Rs 94)

These numbers represent increases of 30-40% from pre-crisis levels, an unprecedented jump that would immediately trigger inflationary pressures across the economy.

Will the Government Intervene?

The government faces enormous pressure to prevent fuel prices from reaching these levels. Political sensitivity around fuel prices is extreme in India. Previous fuel price spikes have triggered protests, hartals, and significant erosion of ruling party support in elections.

Several intervention mechanisms are available.

Excise Duty Cut: The central government can reduce excise duty on petrol and diesel. During the 2022 oil price spike (triggered by the Russia-Ukraine war), the government cut excise duty by Rs 8 per liter on petrol and Rs 6 per liter on diesel. A similar or larger cut could offset a portion of the crude price increase.

However, excise duty on petroleum products is a major revenue source for the central government, generating approximately Rs 3.5 lakh crore annually. A significant cut would blow a hole in the fiscal deficit at a time when the government is already stretching its finances.

State VAT Reductions: The central government can pressure state governments to reduce VAT on fuel. However, fuel VAT is a critical revenue source for states, and getting 28 states and 8 union territories to agree on coordinated cuts is politically challenging, especially when different parties control different states.

OMC Loss Absorption: The government can direct OMCs to hold prices below market levels, with the understanding that losses will be compensated later. This approach has been used repeatedly but weakens the financial health of these publicly listed companies, hurts minority shareholders, and ultimately results in higher prices later when the losses are recovered.

Subsidy Allocation: The government can allocate budgetary subsidies to bridge the gap between market prices and consumer prices. This is the most transparent approach but requires parliamentary approval and increases the fiscal deficit.

The Most Likely Scenario

Based on the government's historical response to oil crises and the current political dynamics, the most likely scenario for the coming weeks involves a combination of measures.

Immediate term (March-April 2026): The government is likely to cut central excise duty by Rs 5-8 per liter, absorbing approximately Rs 1-1.5 lakh crore in annual revenue loss. OMCs will be quietly instructed to absorb some additional cost, perhaps Rs 3-5 per liter. The net result: petrol prices increase by Rs 10-15 per liter rather than the Rs 30-40 that full pass-through would require.

This means consumers should expect:

• Petrol in Delhi: Rs 110-115 per liter
• Petrol in Mumbai: Rs 118-125 per liter
• Diesel in Delhi: Rs 100-105 per liter
• Diesel in Mumbai: Rs 108-112 per liter

Medium term (May-June 2026): If crude prices remain elevated, additional measures will be needed. The government may explore windfall profit taxes on domestic oil producers, expanded subsidies funded by borrowing, and more aggressive diplomatic efforts to secure discounted crude from Russia and other non-Hormuz suppliers.

If crude exceeds $140: At this point, the government's toolkit becomes strained. Excise duties can only be cut so far. OMC losses cannot accumulate indefinitely. The government may be forced to implement fuel rationing or other demand management measures, steps that would signal a genuine energy crisis.

Impact on Diesel-Dependent Sectors

Diesel price increases have outsized economic effects because diesel is the fuel of Indian commerce. Consider the chain reaction:

• Trucking: India's 12 million trucks, which move 65% of the country's freight, run on diesel. A Rs 15 per liter increase in diesel translates to an approximately 10-12% increase in freight costs, which is passed on to consumers through higher prices for everything from electronics to groceries.

• Agriculture: Diesel powers tractors, irrigation pumps, and harvesting machinery. Higher diesel prices increase the cost of food production, contributing to food inflation that hits the poorest Indians hardest.

• Fishing: India's fishing fleet of approximately 250,000 mechanized boats depends on diesel. Higher fuel costs reduce the economic viability of fishing operations, potentially reducing fish supply and increasing prices.

• Public Transport: State transport corporations, which operate buses used by hundreds of millions of Indians daily, face enormous fuel cost increases that must be covered by fare hikes or government subsidies.

What Consumers Can Do

While individuals cannot control global oil prices, there are practical steps to manage the impact:

• Carpooling and public transport: Reducing individual vehicle use directly cuts fuel expenditure
• Trip planning: Combining errands to minimize driving distances
• Vehicle maintenance: Properly inflated tires and regular servicing can improve fuel efficiency by 5-10%
• Electric vehicles: For those considering a new vehicle purchase, the current crisis underscores the economic case for EVs, though the upfront cost remains a barrier for most Indians
• Work from home: Where employers permit, remote work eliminates commuting costs entirely

The Bigger Picture

The Iran war fuel price shock is a reminder of a fundamental vulnerability in India's economic model. A nation that imports 90% of its crude oil is perpetually at the mercy of geopolitical events thousands of kilometers away. While short-term measures can cushion the immediate blow, long-term energy security requires a fundamental shift toward domestic energy sources, including solar, wind, nuclear, and electric mobility.

The Rs 913 LPG cylinder and the Rs 115 liter of petrol are not just economic data points. They are daily reminders that India's energy future must be different from its energy past. The question is whether this crisis will finally catalyze the transformation that decades of policy papers have promised but failed to deliver.

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