New Delhi: As the West Asia conflict drives crude prices above $100 a barrel, India has begun a calibrated pass-through of the shock—raising prices of select fuels while holding the line on retail petrol and diesel.
State-run oil marketing companies (OMCs) have raised industrial diesel prices by around ₹22 per litre and premium petrol by about ₹2 per litre, according to industry sources. However, the prices of regular transport fuels and premium diesel have been kept unchanged.
In Delhi, the price of premium petrol has been increased from ₹99.89 per litre to ₹101.89, and the price of industrial diesel, which is procured in bulk, has been increased to ₹109.59 per litre.
Earlier this month, prices of domestic cooking gas were raised by about ₹60 and commercial LPG by about ₹115.
Addressing the media on the developments in West Asia, Sujata Sharma, joint secretary in the ministry of petroleum and natural gas (MoPNG), said there has been no increase in prices of regular petrol and the hike is limited to premium variants, which account for just 3-4% of total demand. She added that fuel prices are deregulated and determined by oil marketing companies (OMCs) based on market conditions.
Industrial diesel forms about 12% of India's total diesel sales and includes bulk supplies to industries, transporters and state transport units, making it a key driver of input costs across sectors. Experts suggest this may lead to a rise in inflation in the country.
According to Pronab Sen, former chief statistician of India, the hike in industrial diesel prices will have some impact on inflation, but the increase in premium petrol prices will not, as “it is a small quantum and it does not really have a spillover effect”.
Sen, however, said that oil marketing companies have two buffers to absorb the shock of the increase in oil prices. One: pump prices are already much higher than global levels. “Plus, there is a very large buffer in terms of taxes and duties, which the government can reduce to lower the impact on OMCs,” he said.
Notably, the Union government had cut excise duties on petrol by ₹8 per litre and diesel by ₹6 per litre in May 2022 amid the Russia-Ukraine war.
Kirit Parikh, former member (energy) at the erstwhile Planning Commission of India, said: “We are going through uncertain times. In my view, if the prices would not have been raised, the OMCs had little choice but to resort to rationing, which is not desirable. This move will help ensure more efficient use of the fuel.”
Queries emailed to Indian Oil Corporation Ltd, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd remained unanswered till press time.
“IndianOil has ensured no increase in regular automotive fuel prices in India, even amid rising international costs,” Indian Oil Corporation posted on X on Friday. “A limited revision applies only to premium petrol XP-95, with minimal impact on overall consumption. Through evolving global conditions, the focus remains clear: consistent supply, responsible pricing, and service you can rely on.”
War impact
On Thursday, crude oil prices shot up to nearly $119 per barrel after Israel's attacks on the South Pars gas field in Iran and Iran's retaliatory strikes on the Ras Laffan industrial city in Qatar and other energy assets in the Gulf.
However, crude prices fell on Friday after the US signalled potential easing of sanctions on Iranian oil and global powers backed efforts to secure shipping through the Strait of Hormuz.
“In the coming days, we may unsanction the Iranian oil that’s on the water,” US treasury secretary Scott Bessent said in an interview with Fox Business Network on Thursday. “It’s about 140 million barrels.” He added that the US has so far allowed Iranian oil to continue flowing out of the Gulf and indicated that more flexibility could be considered.
At the time of writing the story, the April contract of the Brent crude on the Intercontinental Exchange was trading 1.81% lower from its previous close at $106.67 per barrel. The April contract of the West Texas Intermediate (WTI) was trading at $94.71 per barrel, lower by 0.88% from its previous close.
Further easing sentiment, several major economies signalled support for ensuring safe passage through the Strait of Hormuz—a key chokepoint for nearly 20% of global oil and gas supplies.
Leaders of Britain, France, Germany, Italy, the Netherlands and Japan issued a joint statement urging “an immediate comprehensive moratorium on attacks on civilian infrastructure, including oil and gas installations”.
The gas squeeze
The conflict is also triggering a deeper energy shock through disruptions in liquefied natural gas (LNG) supplies for India, which imports about 90% of its crude oil requirement and 55% of its natural gas demand.
On Thursday, QatarEnergy chief executive officer Saad Sherida Al-Kaabi said in a statement that missile attacks on its Ras Laffan plant reduced Qatar’s LNG export capacity by 17% and caused an estimated loss of $20 billion in annual revenue. "Extensive damage to our production facilities will take up to five years to repair and will compel us to declare long-term force majeure," he said.
With around 47% of India’s liquefied natural gas (LNG) imports sourced from Qatar, India will face a major shortage for years to come.
India’s fertilizers, steel, chemicals, and power are the key user industries of imported LNG and would be the most impacted, with Qatar accounting for about a fifth of global LNG supply and India importing about $14 billion of natural gas annually.
Even as India is stepping up efforts to source LNG from alternate sources including Australia, Papua New Guinea, and Algeria, making up for Qatar's supplies will be difficult.
Of India’s 26.08 mtpa of annual LNG imports, Qatar accounts for around 12.25 mtpa, with Petronet LNG Ltd’ (PLL)'s 20-year contract with QatarEnergy for buying 7.5 mtpa of LNG being the biggest LNG contract between Qatar and India.
“India's diversification efforts will accelerate now,” said an official aware of the developments, adding that OMCs are now looking to procure from spot markets as well as through long-term tie-ups.
To be sure, spot prices in Asian markets have significantly increased since the start of the war on 28 February. The benchmark Japan Korea Marker (JKM)—which is the spot price assessment for physical LNG delivered to Japan, South Korea, China, and Taiwan—rose over 130% to around $25.165 per metric million british thermal unit (MMBTu) from levels of around $10.70/MMBtu on 27 February.
Benjamin Gage, founder of Balance Point Research, a data and analysis firm focused on the LNG market, said: “The political economy of India's gas market has developed on the pillars of sizeable domestic natural gas production and relatively low cost, oil-indexed LNG supply from Qatar and UAE. Removing these oil-indexed volumes from India's domestic gas market will force downstream buyers of imported natural gas to grapple with realities that have already been increasingly present in India's domestic natural gas production market.”