Excise Duty On Petrol Cut To Rs 3, Diesel To Zero: Will Fuel Prices Reduce?

Daily Update

Amid fears of a fuel price spike due to the US-Israel war on Iran, the government on Friday slashed excise duties for petrol and diesel by Rs 10 per liter each, bringing them down to Rs 3 per liter of gasoline and zero for a liter of diesel.

The government on Friday slashed excise duties for petrol and diesel by Rs 10 per liter each, bringing the centre-imposed taxes down to Rs 3 per liter of petroleum and making it zero for diesel.

However, industry sources say the reduction is unlikely to translate into lower prices at fuel stations for most consumers as the cut will seldom be absorbed by oil marketing companies (OMCs) to offset heavy losses on pump sales.

OMCs are currently losing Rs 48.8 per liter of petrol or diesel sold, in large part due to the rise in Brent crude prices; the global benchmark crossed US$100 per barrel red line after the US-Israel war on Iran and the Strait of Hormuz blockade.

International crude prices have gone through the roof in the last month, from around US$70 per barrel to around US$122 per barrel. Consequently, petrol and diesel prices for consumers have gone up all over the world. Prices have increased by around 30 to 50 per cent in South East Asian countries, 30 per cent in North American countries, 20 per cent in Europe, and 50 per cent in African countries.”

The Modi government had two choices

– either increase prices drastically for citizens of Bharat as all other nations have done or bear the brunt on its finances so that the Indian citizen is insulated from international volatility.”

.. in keeping with the commitment of last four years, since the conflict in Russia-Ukraine started, the govvernment decided to take a hit on its own finances again to safeguard the Indian citizen,” Puri said.

The excise duty cut also comes a day after Nayara Energy, the country’s largest private fuel retailer with an 8.4 percent market share and backing by Russian company Rosneft and Kesani Enterprises, hiked petrol and diesel prices by Rs 5.3 and Rs 3 per liter, respectively, NDTV Profit reported.

The US-Israel war on Iran, and Tehran’s consequent Hormuz blockade, have severely disrupted oil and gas exports from the wider West Asia region.

The Hormuz is a critical energy supply channel for the world; Pre-war approximately a fifth of global seaborne crude oil and gas – between 20 and 25 million barrels of crude and about 10 billion cubic feet of gas per day – was shipped via the narrow maritime channel.

As such, it is a key supply route for India;

An estimated 40 to 50 percent of crude oil imports, i.e., between 2.2 and 2.8 million barrels per day, historically comes through that passage.

India also imports large amounts of gas from West Asia; An estimated 16 to 17 per cent of LNG, or liquefied natural gas, exported by Qatar and the United Arab Emirates is purchased by Delhi.

In addition, India also imports – from Qatar, again, and Iran via the Hormuz – large quantities of LPG, or liquefied petroleum gas, that is used by over 33 crore households.

This degree of heavy reliance led to worries about critical oil and gas shortages in the country as a result of the Iran war. However, the government has stressed there is no immediate danger.

On Thursday the government reiterated its position and said India had about 60 days of oil stock cover and 30 days of LPG cylinder supply. Reports of shortages were slammed as a “deliberate misinformation campaign” to trigger panic buying.

Industry sources told NDTV the government had fast-tracked the signing of contracts to diversify crude and LPG imports.

India Speeds Up Oil, LPG Import Deals Amid Middle East Supply Shock

Meanwhile, junior Petroleum Minister Suresh Gopi told Parliament this week that India’s three strategic reserves currently hold an estimated 3.372 million tonnes – or two-thirds its maximum capacity.

How much crude oil reserve does India have? What Union Minister Said

In addition, current total reserves – i.e., SPRs, which hold unrefined or crude oil, and ready-to-use fuel – are at 74 days, Gopi said, “… which includes stores with oil marketing companies”.

LPG production up 25%, government says amid shortage reports

On the supply of LPG, i.e., liquefied petroleum gas used to cook food by over 33 crore Indian households, the government said early March it had ordered a 25 per cent increase in domestic production and that there is no need for panic purchasing

Seeking to cushion oil-marketing companies (OMCs) from the fiscal impact of skyrocketing benchmark oil prices amid the escalating war in West Asia, the government in an order dated March 26 (Thursday) reduced the Special Additional Excise Duty on petroleum and diesel by ₹10 per liter each. This, in effect, has brought down the duty on petrol to Rs 3 and on diesel to nil.

Government has revised its fuel duty structure, lowering the special additional excise duty on petrol to Rs 3 per liter while removing it completely on diesel. The decision comes against the background of ongoing disruptions in global oil supply chains due to the conflict in the Middle East, where Iran continues to tighten control over the Strait of Hormuz.

According to a government order dated Thursday, “the additional excise duty on petrol was cut to Rs 3 per liter from Rs 13 per liter previously. Meanwhile, the excise duty on diesel was cut to Rs 0 from Rs 10 per liter earlier.”