Fuel price hikes seem inevitable, war or not. And also not entirely because elections are over, but due to one key statistic hiding in plain sight.
Consensus estimates peg global crude prices to average $90-$95 per barrel in 2026 as against $70 or so in 2025. If the average Indian crude oil import basket stood at around $70-75 per barrel in 2025, the RBI pegged it at $85 this year. India imports 88% of its crude oil and an increase of every $10 per barrel raises the annual import bill by approximately Rs 77,000 crore -- a sum not as tiny as a school fundraiser.
And it's this $10-$15 increase per barrel of oil that needs to be absorbed by someone.
That someone until now was the government, which like a protective parent stepped forward with a Rs 14,000-crore bill rolling out excise duty cuts of Rs 13 per litre on petrol and Rs 10 per litre on diesel.
But the kindness party has to end at some point as the treasury is in no position to cut a blank cheque. In fact, Prime Minister Narendra Modi indicated as much in a blistering speech last evening urging Indians to work from home, travel less and consume less fuel as a matter of self-interest.
From an individual standpoint, few of us buying less oil is like tossing a glass of water towards the flames. But it makes a difference, or rather all the difference, if the country chips in as a whole. And being one of the largest crude oil consumers, if prices remain suppressed due to government intervention, it prevents demand-supply adjustments distorting global prices, as confirmed by none other than the IMF.
In its April data dispatch, the multi-lateral agency explicitly warned against shielding consumers from rising fuel prices through subsidies or price caps. It argued that energy markets only stabilise when consumption declines. In a supply-constrained shock such as the current disruption triggered by the Iran war, higher prices are supposed to reduce demand. But if governments intervene with subsidies (like excise duty cuts) to prevent domestic prices from rising, demand doesn't adjust downward and the pressure on global supply remains intense, pushing prices even higher.
For now, global crude prices are mounting with each clock tick. Even if Iran and the US somehow manage to find that elusive stopper knot to end war, fuel prices will still conitue to swing higher as normalcy in oil exports and production will take time. Which means, a $10-$15 increase in oil prices this year appears to be a certainty.
But such a prospect whacks up costs for Indian refiners and bleeds Oil Marketing Companies (OMCs). As it is, the cost of crude for Indian refiners shot up from $69 per barrel in February to $114.4 last month. It's likely to average over Rs 105 per barrel this month. As a result, the three state-run fuel retailers, Indian Oil Corporation, Bharat Petroleum Corporation Ltd, and Hindustan Petroleum Corporation Ltd, are currently incurring losses to the tune of Rs 1,000 crore per day, or Rs 30,000 crore per month, according to official estimates. The combined under-recoveries for the past 10 weeks are in excess of Rs 1 lakh crore.
Even though global oil prices are rising, Indian retail fuel prices remained unchanged since April, 2022. In Delhi, one litre of petrol and diesel cost Rs 94.77 and Rs 87.67, respectively, while in Mumbai, it costs Rs 103.54 and Rs 90.03, respectively.
The government did pocket decent gains buying discounted Russian oil in the past as against passing on price cuts. So it's only fair to return the favour absorbing OMC losses now and shielding consumers from higher prices. But for how long?
If global oil prices tear past $120 per barrel, that coveted price freeze will begin to buckle as economic reality often trumps populism soon after elections.
Which is why there's breathless speculation of higher pump prices to roll as early as this week or next, though the government has dismissed any such concerns. In contrast, countries such as China, Netherlands, Norway, Germany and the UK, prices have been raised upwards by 20-27%, while in Japan, Italy, Spain and Korea, it's as high as 30%.
Moreover, while OMCs are resisting pressure to raise retail prices, they didn't shy away from increasing prices of premium petrol and diesel variants. For instance, industrial diesel prices shot up 25% from Rs 87.67 to Rs 109.59 per litre.
Analysts warn that if global crude prices remain elevated for an extended period, oil marketing companies may face deeper financial stress. Brent was trading around $60 per barrel in January, but briefly touched $126.4 in April, -- the highest level in early four years. Although a temporary ceasefire pushed prices back below $100, the absence of meaningful progress has triggered another price upswing. For context, Brent averaged $67 per barrel during the first two months of 2026.
In all, oil prices surged past 45% since the start of the war on February, 28 and chances are they could go a lot higher if the war prolongs. Restarting the shut production wells and restoring damaged wells will take longer than anticipated and oil exports will take even longer to normalize, which means prices will remain elevated than last year. And as already noted, even if the Strait of Hormuz resumes trade in May or June, the overall supply may remain below pre-war levels for rest of the year. The world could continue to lose 4-6 million barrels per day of capacity even after the Strait reopens and that means higher prices will prevail for months.
All of which confirms only one thing. That fuel price rise is a certainty and consumers should brace up.