India has protected domestic fuel prices from global oil shocks by diversifying crude imports and reducing excise duties. By shifting away from over-reliance on the Strait of Hormuz and utilizing strategic reserves, the government has mitigated the full impact of US-Iran tensions on local consumers. This approach involves a mix of corporate cost-sharing by oil companies and targeted export levies to ensure supply security.
India is navigating a period of high global oil price volatility linked to US-Iran hostilities by using a combination of policy interventions and supply chain adjustments. Instead of allowing international price spikes to fully impact domestic fuel costs, the government has implemented a multi-layered strategy involving tax adjustments, corporate cost-sharing, and a major shift in how the country buys crude oil.
Diversifying Crude Supply Sources
A critical change in India's strategy is the reduction of its dependence on the Strait of Hormuz, a key shipping route that previously handled nearly 35% of the country's crude imports. To reduce this vulnerability, Indian refiners have rapidly expanded their supplier base to 41 countries. A major component of this shift has been the increased procurement of Russian oil, which by July accounted for more than half of India's total crude imports. By sourcing from a broader range of geographies, including the US and UK, the country is reducing the risk of supply disruptions that could arise from regional conflicts.
Government and Corporate Financial Buffers
The government provided relief by cutting excise duties by Rs 10 per litre on petrol and diesel. This intervention was designed to balance the financial burden on state-owned oil marketing companies—such as Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation—which were forced to sell fuel at prices below the actual import cost. While this helped keep retail prices in check, these companies have also had to absorb a portion of the rising costs directly on their balance sheets. Additionally, the government utilized export levies on petrol, diesel, and aviation turbine fuel to discourage outward shipments, ensuring that domestic fuel availability remains stable during times of global scarcity. These levies are subject to periodic adjustments based on market conditions.
Strategic Reserves and Economic Preparedness
India has also relied on its strategic petroleum reserves, which hold approximately 5.33 million tonnes of crude, to provide a safety net for its refinery network. This storage capacity acts as a buffer against short-term supply chain shocks. Furthermore, the government’s focus on long-term initiatives, such as promoting electric vehicles and improving public transport, is intended to lower the country's overall oil demand and conserve foreign exchange reserves. Unlike past oil crises in 1973 or 1990, India currently maintains stronger foreign exchange reserves and greater refining capacity, providing more flexibility to navigate external shocks. Investors may continue to monitor the profitability of oil marketing companies, as prolonged cost absorption could impact their margins, alongside tracking future adjustments to export duties and the evolving geopolitical situation in the Middle East.