Petrol, diesel prices hiked for first time in 4 years; fuel retailers still face a gap of Rs 15-20/litre on sales

India’s state-run refiners have raised fuel prices for the first time in four years, as New Delhi yields to crude prices pushed higher by the war in Iran, and to the resulting financial pressures battering its processors.

Diesel and gasoline prices rose by over 3%, a modest increase in the context of an almost 50% increase in Brent crude since the conflict began.

Diesel will cost Rs.90.67 a litre, gasoline will be priced at Rs.97.77 a litre in New Delhi. Prices are now the highest since May 2022.

India is the world’s third-largest oil importer, heavily dependent on global markets and energy flowing out of the Persian Gulf. In a crisis, the government typically prioritises the protection of its 1.4 billion, price-sensitive consumers and containing inflation, but last Friday’s increase suggests it is beginning to restore a balance as fiscal and market pressures grow.

The increase still falls short of expectations for the country’s largest state names — Indian Oil, Bharat Petroleum, Hindustan Petroleum — which have been losing Rs 10 billion ($104 million) daily on fuel sales. Fuel retailers will still face a gap of Rs.15 to 20 per litre on fuel sales, said Radhika Piplani, economist at Motilal Oswal Financial Services.

Shares of the refining giants fell in early trading in Mumbai last Friday. Hindustan Petroleum declined as much as 2.9%, while Bharat Petroleum and Indian Oil traded more than 1% lower. On the private side, gasoline is sold at Shell fuel stations at over Rs.110 and diesel at nearly Rs.120.

State fuel retailers in India control 90% of the countries’ outlets, and are on paper free to set rates. Yet government is a majority shareholder and has kept pump prices frozen since March 2024.

Diesel accounts for about 40% of India’s total fuel sales, while gasoline’s share is more than 17%. Retail rates vary from state to state due to the local value added tax. Last Friday’s move follows a cut in fuel taxes in March that gave refiners some relief, but will not offset losses. Integrated refiners need world prices closer to $80–$85 a barrel to break even, according to Macquarie Research. Brent was trading on last Friday at $107 per barrel. A modest increase of just Rs.3 a litre is partly about containing inflation, already a major concern with a weak rupee and oil above $100 a barrel. The country’s balance of payments may stay in deficit for a third straight year, economists estimate.

It may also be about beginning to prepare the ground for subsequent, and more significant increases, a pattern frequently seen in India. “The hikes are not enough but could be the start of multiple staggered hikes,” Madhavi Arora, economist at Emkay Financial Services, said. “Still, we believe Rs.5 per litre could have been a good level to start with,” she said, adding that oil marketing companies may still face volatility. The market had been anticipating a hike in diesel and gasoline prices after the conclusion of regional elections at the end of last month.