Oil Shock: India Cuts Fuel Duty Amid Middle East Crisis, Price Surge

Top Summary

• What happened: The government has reduced excise duty on petrol and diesel by ₹10 per litre due to soaring crude oil prices.
• Why it matters: The Middle East war and Strait of Hormuz blockade have caused a massive surge in global oil prices, impacting India's economy.
• What changes for people: Reduced fuel prices offer some relief to consumers, but windfall taxes have been imposed to offset the impact.
• Who is affected: Indian consumers, oil manufacturing companies, and the government are all impacted by fluctuating crude oil prices.

Crude Oil Crisis Hits India

The ongoing Middle East conflict has triggered attacks on key oil refineries and a blockade of the Strait of Hormuz.

This disruption has sent crude oil prices soaring, significantly impacting India, a major oil importer.

Excise Duty Slashed to Ease Burden

The government has responded by slashing excise duty by ₹10 per litre on both petrol and diesel.

This move aims to cushion the blow of inflated prices for both oil companies and consumers. The overall excise duty on petrol will be reduced from ₹21.90 to ₹11.90, and on diesel from ₹17.80 to ₹7.80.

Crude Oil Prices Explode

The average price of the Indian basket of crude oil has jumped nearly 80% in just one month.

In February 2026, the average price was $69.01 per barrel, which then surged to $123.15 in March 2026. The price on March 24, 2026, reached $147.24.

Windfall Taxes Imposed

To offset the financial burden of the excise duty cut, the government has imposed windfall taxes.

 

"Duties have been imposed on exports of diesel at Rs 21.5 per litre and on ATF at Rs 29.5 per litre. This will ensure adequate availability of these products for domestic consumption," Finance Minister Nirmala Sitharaman said on X.

 

These taxes are expected to absorb a significant portion of the financial strain resulting from the excise duty reduction.

Economic Impact Analysis

Emkay Global estimates that the excise duty cut may absorb 30-40% of annualised losses for Oil Manufacturing Companies at current prices.

The annualised fiscal hit to the government could be around ₹1.7 trillion. However, windfall taxes may cover almost half of the excise loss.

Scenario Analysis

The Middle East crisis remains volatile, with Iran threatening attacks on ships in the Bab el-Mandeb Strait.

If Brent prices rise to $90 per barrel (a medium shock scenario), India's:

• Current account deficit may increase from 1.3% to 1.9% of GDP.
• Retail inflation may rise from 4.1% to 4.5%.
• Balance of Payment may fall from $15 billion to $63 billion.

What to Watch Next

The market will be closely watching the developments in the Middle East and their impact on global oil supply chains. Further government interventions may be necessary depending on how the crisis unfolds.