During the Iran crisis and escalating global tensions, when fuel prices across the world witnessed a record-breaking surge, India managed to keep its retail prices largely stable. This was achieved through a combination of diversifying crude oil import sources, such as purchasing crude oil from Russia at discounted rates, and implementing strategic domestic tax adjustments, while the government, in coordination with Oil Marketing Companies (OMCs), worked to provide a volatility shield, preventing the shocks of fluctuating international oil prices from being directly transferred to the pockets of the common public.
Recent Price Adjustments in India
On May 25, petrol and diesel prices in India saw their fourth increase within a span of 11 days. 53 rupees per liter. 6 percent in diesel prices. However, when compared to the rest of the world, this increase remains Importantly lower. Excluding Gulf nations, India has seen a much smaller rise in fuel costs compared to both large and small nations globally.
The Catalyst Behind the Global Surge
The primary reason for this global spike was the closure of the Strait of Hormuz by Iran on February 28, 2026, which caused a rapid jump in global oil markets. Brent crude prices soared to 126 dollars per barrel. Every major oil-importing economy faced a difficult choice: either pass the burden of increased costs onto the government exchequer or pass it on to consumers at the pump. Most countries chose the latter, while india, however, didn't follow suit immediately. From February 28 to May 15, a period of 78 days, the government maintained stability in petrol and diesel prices. During this time, Oil Marketing Companies were incurring daily losses of approximately 1,000 crore rupees. It was only in mid-May that prices were adjusted in four phases—on the 15th, 19th, 23rd, and 25th—to partially mitigate these losses. Even after these four hikes, India has passed on only a small fraction of the global price surge to its consumers.
Global Comparison: India vs The World
7 percent. 5 percent increase. Myanmar witnessed a staggering 90 percent hike at the pump, while Pakistan saw a 55 percent increase. 4 percent, which is nearly three times higher than India's figure. 1 rupees per liter in Delhi remains among the lowest in the world for economies that don't provide direct fuel subsidies. In most major developed economies, petrol is now selling for over 150 rupees per liter, with the European Union average reaching 179 rupees. Neighbors like Pakistan and Nepal have crossed the 135 rupees mark despite lower per capita incomes. The only economies with consistently lower prices than India are those that provide direct subsidies, like Malaysia and the UAE, or the US, where fuel tax structures are inherently lower.
State-wise Price Disparities and VAT Impact
While Central Excise Duty on petrol and diesel is uniform across India, the Value Added Tax (VAT) levied by state governments varies Notably. This is the primary reason for the price differences seen at petrol pumps across different states. 3 rupees. 1 rupees or less. This difference reflects the VAT rates set by state assemblies, which range from 20 percent to over 30 percent, with some states adding an infrastructure cess. The disparity is most pronounced in diesel, which is crucial for freight, farming, and rural irrigation. 5 rupees. This 16 rupee difference impacts truck drivers, state buses, and farmers in high-VAT states daily.
Historical Context and Financial Burden
The May 2026 hikes must be viewed in the context of the last four years. Between the start of the Russia-Ukraine war in February 2022 and the 2026 Hormuz crisis, the government reduced retail prices four times. During the Russia-Ukraine conflict, India was the only G20 economy to lower pump prices by cutting Central Excise Duty twice—in November 2021 and May 2022—reducing petrol by 18 rupees and diesel by 16 rupees. When the Hormuz crisis hit, the government's first move was again to cut taxes. On March 27, 2026, the Special Additional Excise Duty (SAED) was reduced by 10 rupees per liter on both petrol and diesel, bringing the excise duty on diesel to zero. The government absorbed a revenue loss of approximately 30,000 crore rupees to protect consumers. 34 lakh crore rupees plus thousands of crores in interest. Unlike the past practice of deferring liabilities through bonds, the current mechanism involves transparent excise cuts and immediate revenue absorption, ensuring no burden is passed to future taxpayers.