Impact of US-Iran Conflict on India's Fuel Prices

Rising Oil Prices and Their Effects on India

The ongoing conflict involving the US, Israel, and Iran has led to a significant increase in global oil prices, directly affecting the cost of petrol and diesel in India. As of March 28, 2026, petrol prices in New Delhi remain at Rs 94.77 per litre, while diesel is priced at Rs 87.67 per litre. In Mumbai, consumers are paying Rs 103.54 for petrol and Rs 90.03 for diesel. Although these prices have not changed since yesterday, the situation behind the scenes is quite volatile.

Since the conflict began on February 28, following attacks on Iranian facilities, crude oil prices have fluctuated dramatically. Brent crude initially surged to over $119 per barrel before settling around $100, while West Texas Intermediate rose from about $70 to over $92. These price hikes are creating significant supply challenges, particularly for India, which relies on imports for nearly all its crude oil (approximately 88%). Almost half of these imports transit through the Strait of Hormuz, making any instability in that region a direct threat to domestic fuel supplies. Recent warnings from Iran to shipping companies and increased insurance costs have further complicated tanker movements, raising concerns.

To mitigate the impact of rising fuel prices, the government has reduced the excise duty on petrol from Rs 13 to Rs 3 per litre and eliminated it entirely on diesel, which previously stood at Rs 10 per litre. This measure aims to prevent petrol and diesel prices from escalating significantly, despite the rise in global crude prices. Without this intervention, prices could have surged by as much as Rs 24 for petrol and Rs 30 for diesel per litre.

Due to the lowered duties, oil marketing companies are currently absorbing the additional costs associated with purchasing and refining crude oil, which is why consumers have not seen any price increases at the pump. This duty reduction serves as a temporary buffer to maintain stable retail prices. However, this relief comes at a considerable cost to the government, which anticipates a revenue loss of around Rs 7,000 crore over the next 15 days. This short-term sacrifice is intended to curb inflation and shield families from immediate financial strain at fuel stations.

Simultaneously, the government has imposed new export duties to ensure sufficient fuel availability within the country. An export duty of Rs 21.5 per litre on diesel and Rs 29.5 per litre on aviation turbine fuel has been introduced to discourage refiners from excessive overseas sales and to prevent them from profiting excessively while local supplies are constrained. The government expects to generate approximately Rs 1,500 crore from these duties in the initial two weeks, with rates subject to review every fortnight.

Private companies are responding to the situation in various ways. Nayara Energy has increased petrol prices by Rs 5 per litre and diesel by Rs 3 per litre at its stations to offset rising costs, while Jio-BP has opted to keep its prices stable, accepting some losses for the time being.

India has been taking steps to bolster its defenses against such shocks over the years. The country currently maintains strategic crude oil reserves of about 53 lakh metric tonnes, with plans to expand this to over 65 lakh metric tonnes soon. The blending of ethanol in petrol has already reduced crude oil imports by approximately 4.5 crore barrels annually. Other initiatives, such as expanding metro rail systems, electrifying railways, and enhancing domestic refining capacity, have also contributed to a decreased reliance on diesel.

Prime Minister Narendra Modi has been engaging directly with leaders from Iran, the US, and other nations to ensure the safe passage of oil and LPG tankers. Additionally, India has diversified its oil sourcing, now procuring from 41 countries instead of the previous 27. Russian crude has emerged as a vital alternative to fill gaps when Middle Eastern supplies are disrupted.

In response to the ongoing conflict in Ukraine, the Federal Government has established seven special task forces to monitor fuel availability and oversee supply chain logistics, aiming to alleviate pressure on petrochemical products. While fuel prices at the pump remain stable for now, there are indications of rising costs from other sources. Increased oil prices lead to higher transportation expenses, which in turn elevate prices for vegetables, dairy, groceries, and virtually all goods that require transport from production sites to retail outlets. Should the conflict continue, crude oil prices are likely to remain high, resulting in increased inflation rates globally, which will further strain household budgets.

All businesses involved in the transportation, storage, or manufacturing of goods will face higher costs, ultimately hindering economic growth and driving up prices. Although the excise duty cut provides immediate relief at the petrol pump, it also exacerbates the government's fiscal deficit. Increased government borrowing could lead to higher interest rates, impacting home loans, car loans, and business investments. In essence, the US-Iran conflict has initiated a series of challenges. Rising oil prices inflate India's import bill, weaken the rupee, heighten inflation risks, and exert pressure on government finances and the stock market. The duty cuts and new export duties are attempts to balance the needs of the public, oil companies, and the broader economy.

Currently, petrol and diesel prices at the pump remain unchanged, offering some respite. However, the pressure from elevated global crude prices is tangible and will continue to influence daily life and the Indian economy in the coming weeks. The duration of this situation will depend on the restoration of peace in West Asia and whether oil prices can return to more manageable levels.