Business
“Crude Oil Crash to $70… But Petrol Prices Won’t Fall Yet? Inside the Government’s Big ‘Wait-and-Watch’ Strategy”
Global oil prices hit a 4-month low after Iran ceasefire, but experts say Indian consumers may not see immediate relief as excise duty, OMC losses and fiscal pressure dominate the equation
Global crude oil markets are flashing a rare sigh of relief. Prices have tumbled from nearly $120 per barrel to around $70, slipping back to pre-conflict levels after a US–Iran ceasefire eased tensions and reopened key shipping routes like the Strait of Hormuz. But for Indian consumers waiting at fuel pumps, the big question remains unchanged — will petrol and diesel become cheaper now?
The short answer, according to experts, is: not immediately.
Despite the sharp correction in global oil prices, retail fuel rates in India have barely moved downward. In fact, petrol and diesel prices have already climbed by nearly ₹7.5 per litre since mid-May, following earlier global volatility triggered by geopolitical tensions.
Why falling crude is not translating into cheaper fuel
The pricing gap is being shaped not just by crude oil trends but also by India’s fiscal balancing act. The government had earlier reduced excise duty by ₹10 per litre on petrol and diesel, absorbing much of the global price shock. This move alone has reportedly led to a revenue impact of nearly ₹7,000 crore per fortnight.
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Experts say this buffer is now acting as a barrier to immediate price cuts.
According to DK Srivastava, Chief Policy Advisor at EY India, any fuel price reduction may likely be tied to the restoration of excise duties. In other words, before consumers see relief, the government could first move to rebuild its tax cushion.
Similarly, Sourav Mitra, Partner – Oil & Gas at Grant Thornton Bharat, points out a familiar historical pattern: when crude falls, the government often adjusts taxes first rather than passing the full benefit directly to consumers.
Oil companies still bleeding losses
Another major factor is the financial stress on Oil Marketing Companies (OMCs) such as Indian Oil Corporation, Bharat Petroleum Corporation Limited, and Hindustan Petroleum Corporation Limited.
Union Petroleum Minister Hardeep Singh Puri has confirmed that state-run refiners have already suffered cumulative losses of nearly ₹74,781 crore on fuel sales, largely due to selling petrol and diesel below cost for months.
Even with crude prices softening, industry estimates suggest OMCs will need 6–12 months at sustained low crude levels to recover earlier losses. Until then, any sharp retail price cut would deepen financial stress or require fresh government compensation.
“Wait-and-watch” from the government
Officials and analysts suggest that policymakers are adopting a cautious stance, closely tracking the stability of the US–Iran truce before making pricing decisions.
There is also a practical issue: refiners are still processing crude purchased at higher prices during the conflict period. As a result, cheaper international oil has not yet fully entered the supply chain.
As one senior official noted, the benefit of lower crude prices typically reaches consumers with a lag — not immediately.
Why petrol cuts may come late, not now
Experts believe that even if crude remains below $70–75 per barrel, a meaningful cut in retail fuel prices is unlikely before a sustained period of stability. Some projections even suggest that a significant reduction may only become realistic in the second half of 2026, depending on global conditions and OMC balance sheets.
Strategic rethink: Is India moving towards oil buffers?
Beyond pricing, the debate is now expanding into long-term energy policy. Economists have revived the idea of an Oil Price Stabilization Fund, similar to India’s earlier “oil pool account” system, which existed before being discontinued in 2002.
The idea is simple — save during low oil cycles and use the buffer during price spikes. However, experts warn that such mechanisms require strict fiscal discipline to avoid long-term deficits.
Some analysts, however, argue that instead of financial buffers, India should expand strategic petroleum reserves to ensure supply security during global disruptions.
