Why Petrol Prices in India Keep Rising — Even When Crude Oil Doesn’t

A comparative analysis: 2013 vs 2026

1. The Puzzle

On paper, crude is roughly flat to cheaper in dollar terms, yet the pump price has risen by more than 40%. The explanation is not a single factor — it’s the interaction of four structural forces: taxation, currency depreciation, fiscal dependency, and geopolitics.

2. Taxation Is the Single Biggest Driver

Petrol and diesel sit outside India’s GST regime. Instead, they’re taxed under the older system: a fixed central excise duty plus a state-level VAT that varies by state. Because these taxes are levied as fixed amounts or as a percentage stacked on top of the base price (not as a single harmonised GST slab), they behave very differently from crude prices — they rarely fall when crude falls, and they’re a favourite lever for governments needing quick revenue.

By various points in the last decade, taxes have accounted for roughly half to two-thirds of the retail pump price. When India’s steepest-ever excise hikes were imposed in 2020, one industry report noted that taxes had risen to about 69% of the pump price — higher than in Italy (64%), France (63%), or the UK (62%), and far above Japan’s roughly 50%.

Crucially, when crude prices fall, governments have historically not passed the full benefit to consumers — they instead raised excise duty to capture the difference as revenue. When crude prices rise sharply, as in 2026, governments face pressure to cut excise duty just to keep pump prices from spiking further, rather than to actually lower them. A March 2026 excise cut of ₹10/litre, for instance, was explicitly designed to protect state oil companies from losses, not to reduce what consumers pay at the pump.

3. Fuel Taxes Are a Reliable Fiscal Cushion

Because petrol and diesel remain outside GST, the central and state governments retain direct control over this revenue stream without the constraints of GST revenue-sharing. Fuel demand is relatively inelastic — people keep buying petrol even as prices rise — which makes it one of the most dependable non-GST revenue sources available to the exchequer. This gives governments a structural incentive to keep the tax component high rather than let pump prices fall in step with global crude.

4. The Rupee Has Nearly Halved in Value

This is the part often missed in domestic commentary. India imports 85–90% of the crude oil it refines, and pays for it in US dollars. In 2013, one dollar cost roughly ₹54–55. In 2026, it costs roughly ₹95–96 — a depreciation of close to 75%.

That means even “flat” crude prices in dollar terms translate into a much larger rupee import bill than a decade ago. Bloomberg reporting has repeatedly tied Indian rupee weakness directly to the oil import bill: coverage of the 2018 currency slide noted the crude import bill for India’s fast-growing oil market had jumped 76% year-on-year in a single month, pushing the trade deficit to a five-year high and dragging the rupee down with it. The same dynamic recurred in 2026: a roughly 50%+ surge in Brent crude tied to the Iran conflict combined with foreign investor outflows and tariff pressure on Indian exports to push the rupee to record lows near ₹96–97/dollar. A weaker rupee and a more expensive oil bill reinforce each other — cheaper oil in dollars can still mean expensive oil in rupees.

5. 2026’s Specific Shock: War in the Middle East

Unlike in most of the 2013–2025 period, 2026 saw a genuine supply shock. Bloomberg reported that Indian state refiners raised fuel prices in May 2026 for the first time in four years, as Brent crude rose sharply — around a 50% jump — due to the conflict involving Iran and disruption risks around the Strait of Hormuz, through which a large share of the world’s seaborne oil passes. Notably, Bloomberg described the retail price increase (~3%) as “modest” relative to the much larger jump in crude costs — meaning Indian refiners/OMCs absorbed a large share of the shock rather than passing it fully to consumers, at least initially.

At the same time, India raised export duties on diesel and jet fuel (Bloomberg, April and July 2026) — a move aimed at discouraging refiners from selling fuel abroad and keeping domestic supply and revenue collection stable during the crunch. This reflects the government prioritising fiscal and supply stability over cushioning retail prices.

6. No More Subsidy Cushion

Petrol pricing was decontrolled in 2010 and diesel in 2014, removing the government subsidy that had previously insulated consumers from global price swings. Since then, retail prices are meant to track crude costs daily (a “dynamic pricing” system adopted in 2017) — but this cuts both ways: it also means tax policy, not subsidy policy, is now the main tool governments use to manage what consumers pay, and taxes are far stickier than crude prices.

7. Putting It Together

No single factor explains the entire gap between 2013 and 2026 pump prices. The combination is:

1. Currency effect — a ~75% weaker rupee means the same dollar cost of crude is much more expensive in rupee terms.
2. Tax accumulation — excise duty and state VAT, levied outside GST, have structurally risen over the decade and rarely fall in step with crude.
3. Fiscal dependency — fuel taxes are one of the most reliable, hard-to-replace revenue sources for both central and state governments.
4. Geopolitical shocks — the 2026 Iran-related conflict pushed crude and freight costs up sharply and independently of the above factors.
5. End of subsidies — post-2010/2014 decontrol, there’s no buffer left to absorb global price shocks; taxation is now the only lever, and it’s typically used to raise revenue, not shield consumers.

Sources

• Bloomberg, “India Hikes Fuel Prices For The First Time in Four Years” (May 2026)
• Bloomberg, “India Raises Diesel, Jet Fuel Export Taxes to Boost Revenue, Curb Outflows” (April 2026)
• Bloomberg, “India Raises Export Levies on Diesel and Jet Fuel as Global Supply Crunch Deepens” (July 2026)
• Bloomberg, “India Raises Fuel Export Taxes to Boost Stockpiles as Global Supply Tightens” (August 2026)
• Bloomberg (via Business Standard syndication), “How rupee has been held hostage to a 70% surge in India’s crude oil bill” (2018)
• Gulf News, “Petrol price hits highest level under BJP govt, diesel at record high”
• Gulf News, “Fuel prices rise unabated, petrol nears Rs90 per litre in Mumbai”
• Government of India, Press Information Bureau — official excise duty notifications (primary source, cited for factual tax figures only)