Government Cuts Excise Duty on Petrol and Diesel Amid US-Iran War I Strait of Hormuz

The Indian government on Friday executed a significant reduction in federal excise duties on motor fuels, a move aimed at absorbing the shock of global crude prices hitting $122 per barrel without passing the burden to the public.

In a late-night notification, the Finance Ministry reduced the special additional excise duty on petrol to Rs 3 per litre from Rs 13, while the duty on diesel was slashed to zero from the previous Rs 10. The combined Rs 10 per litre reduction is the largest fiscal intervention in the energy sector this year.

Despite the deep tax cuts, retail prices at the pump are expected to remain unchanged. Market analysts point out that the reduction is intended to fill a massive "under-recovery" gap for state-run Oil Marketing Companies (OMCs) rather than provide a direct discount to consumers.

Before this intervention, state retailers like IOC, BPCL, and HPCL were reportedly losing approximately Rs 24 on every litre of petrol and Rs 30 on diesel as international costs outpaced domestic retail caps.

With Brent crude trading near $108, even after a brief strike pause in West Asia, the cost of importing raw oil remains significantly higher than the current retail selling price in India.

Union Petroleum Minister Hardeep Singh Puri noted that the government’s priority is insulating the common man from a potential 30% spike in fuel bills that would have occurred without this tax adjustment.

The move follows a decision by private player Nayara Energy to raise its fuel prices by Rs 5 per litre to stay afloat. By removing the excise duty for state-run firms, the Centre has effectively prevented a wider inflationary spiral.