The central government has eliminated key excise duty on petrol and diesel prices in India, in what can be seen as an attempt to shield the economy from a domino effect of surge in crude oil prices due to the Iran war.
In a series of late-night notifications, the Ministry of Finance announced that the special additional excise duty and additional excise duty on petrol have been cut to “Nil”. For diesel, the government set the SAED at ₹18.5/litre and the additional excise duty at ₹3/litre.
These measures, effective immediately, arrive as Brent crude remains volatile near $100 a barrel, having recently touched peaks of $119 following military strikes on Iranian infrastructure. India, which imports ~88% of its crude oil, is seen as most vulnerable to the crisis in West Asia.
The effective closure of the Strait of Hormuz—a chokepoint for one-fifth of global oil consumption—has seen daily transits drop from 120 vessels to just a handful, leaving nearly 20 million barrels per day at risk.
However, India’s oil marketing companies—Indian Oil, Bharat Petroleum and Hindustan Petroleum—have absorbed the pain, maintaining a freeze on petrol and diesel prices to keep inflation in check. They are estimated to be taking on losses of up to ₹50 per litre on diesel and ₹20 per litre on petrol.
Now, with the excise duty cut on petrol and diesel prices, the government too has stepped in to shoulder the loss burden of its oil companies.
To be sure, there have been instances of petrol and diesel price hikes in the recent past, albeit in smaller pockets. On Thursday, Nayara Energy Ltd.—India’s largest private fuel retailer—broke the status quo by hiking petrol prices by ₹5 per litre and diesel by ₹3 per litre. The move triggered panic buying and long queues at fuel stations across India as people feared that Indian Oil would soon follow suit.