₹3 costlier at the Pump – The geopolitics behind India’s fuel price hike

Dr. Vinod Chandrashekhar Dixit

Petrol and diesel prices in India were hiked by ₹3 per litre on May 15, 2026, the first increase in over four years, mainly because state-run oil marketing companies like IOC, BPCL, and HPCL were facing severe financial strain from surging global crude oil prices. The immediate trigger was the escalating West Asia conflict, particularly the US-Israel attack on Iran on February 28, 2026, and Iran’s retaliation that effectively shut the Strait of Hormuz, a chokepoint handling about one-fifth of the world’s oil and gas supply. This pushed Brent crude from around $69 per barrel in February to $113–$123 per barrel by March, and it remained above $100 through April and May. Since India imports 85–90% of its crude oil, the import bill shot up sharply, and with the rupee under pressure in the ₹96–98 range, paying for costlier crude in dollars became even more expensive.

Whenever petrol and diesel prices are hiked, there are protests by the public and the opposition for a few days before everyone goes back to their routine, but it must be remembered that the country’s economy is being fueled by the blood of the common man. Many nations face higher inflation due to rising global crude oil prices, and as a consequence, this inflation has a devastating impact on both producers and consumers, widening the gap between oil-importing and oil-exporting nations. Though crude oil prices are market-linked, the government can still reduce taxes as a populist and relief measure to cushion the impact on citizens.

Oil companies had kept retail petrol and diesel prices frozen since April 2022 despite global volatility, absorbing losses to “insulate domestic consumers”. But by March 2026 they were reporting daily under-recoveries of ₹1,000–₹1,200 crore, and even after the government cut excise duty by ₹10 per litre in March, the losses were unsustainable. The hike also came 16 days after assembly elections concluded in four states, as prices had remained unchanged through the polling period. While crude cost is the biggest factor, taxes remain a large component too — central excise, state VAT, and dealer commission together make up about 45–55% of the retail price, which is why fuel costs vary by state. Experts warn this may not be the last hike if the crude oil crisis linked to the West Asia conflict worsens further.

High inflation, coupled with skyrocketing food prices, refuses to come down. A rise in oil prices leads to a transfer of income from oil-importing to oil-exporting countries because of a shift in the terms of trade. The increase in crude oil prices also raises the cost of fertilizers, which require petroleum or natural gas to manufacture, and natural gas faces its own supply constraints similar to oil. The rise in petrol and diesel prices has a rippling effect across the entire economy because all commodities in India are transported by vehicles that run on petrol or diesel, so any increase in fuel prices directly pushes up the prices of essential goods. The additional burden of rising fuel prices is becoming unbearable for the public and feels like another slap on people’s faces. Petrol and diesel have become an indispensable part of our day-to-day life, and we can’t imagine life without them, but with prices skyrocketing, everything we use is getting costlier.

Price hikes hit low-wage earners and fixed-salaried middle-class families the hardest compared to high-income groups. Due to rising fuel costs, fares for buses, autos, and taxis increase, creating major problems for the common man and poor people who must travel long distances for work. The increase in petrol and diesel prices directly affects the common man and makes the situation miserable for him. With the rise in fuel prices, there has been a rapid increase in the prices of food products and other essential commodities, and the poor sections of society suffer the most. Poor people work hard to earn money, and when prices of essentials rise, life becomes extremely hard for them.

The government’s inability to control petrol and diesel prices adds fuel to public dissatisfaction, and the opposition takes up the issue politically even though they know the government has little control over international crude oil prices. Most problems also arise because of the unchecked growth of low-mileage vehicles and fuel guzzlers on the roads. Fuel pricing needs to be rationalized. A large part of the tax collected from fuel is used for development work, but when combined with populist subsidies, it creates fiscal stress. A sharp spike in oil prices can reverse the declining inflation trend and put pressure on both central and state governments to cut taxes on petrol and diesel, which is likely to adversely impact their non-GST revenue.

Despite heavy price hikes, the rich continue to live the life they are used to while the burden is borne by the poor and the middle classes. Since we are heavily dependent on the international market for fuel, we must reduce this dependence. The tax component on fuel is still very high, with central excise duty and state VAT making up nearly 45 to 55 percent of the retail price of petrol and diesel, and a cut in these taxes can provide immediate relief. A weakening rupee also adds to the cost because India imports over 85 percent of its crude oil and pays in dollars, so a weak rupee makes imports costlier even if global crude prices are stable. The rise in diesel prices severely impacts logistics and MSMEs, as small businesses and transporters operate on thin margins and even a two to three rupee increase per liter can wipe out profits and lead to job losses. High fuel prices should ideally push electric vehicle adoption, but the lack of charging infrastructure and high upfront costs mean the common man still has no real alternative. To control fuel-driven inflation, the RBI raises interest rates, which makes home loans and EMIs costlier, creating a double blow for the middle class. In rural areas, diesel price hikes raise the cost of running tractors, irrigation pumps, and transporting crops to markets, further cutting into farmer incomes. Global factors like OPEC+ production cuts, the Russia-Ukraine conflict, and Middle East tensions keep crude oil volatile, and India has little control over these events but bears the full impact. This volatility also shows why India must strengthen its Strategic Petroleum Reserves to cushion sudden global shocks. People are also demanding more transparency, with a clear breakup of base price, freight, dealer commission, and taxes displayed at petrol pumps so they know what they are paying for.

What we need is large-scale development of bio-diesel, higher ethanol blending, and greater government allocation for alternate sources of energy, along with high-capacity goods and public transport systems to reduce per-capita fuel use. The government should advise state governments to cut ad valorem VAT on petrol and diesel and also reduce its own excise duties on petroleum products. The time has come to rethink complete deregulation of petrol prices and consider a price stabilization fund to smooth out extreme spikes. We must urgently shift toward alternatives such as biofuels, CNG, electric vehicles, and solar power. It must be remembered that petrol is inflammable, but the cost of petrol is even more inflammable for the common man.

(The writer is a Freelance Journalist & Cartoonist; Holder of Limca Book of Record (8 Times), dixitpatrakar@yahoo.in