The ₹3 per litre increase in petrol and diesel prices announced by the government is a fraction of the actual losses being absorbed by state-run oil companies, a senior official said on Friday, 15 May. With global crude oil prices crossing $100 a barrel, public sector oil marketing companies — along with the government — are collectively absorbing losses of nearly ₹1,000 crore every day to shield Indian consumers from the full force of the global oil shock.

The Scale of Under-Recovery

According to official sources, petrol under-recoveries are currently estimated at around ₹26 per litre, while diesel under-recoveries are as steep as ₹82 per litre. Against that backdrop, the ₹3 hike covers only a marginal portion of the financial burden now being borne by Indian Oil, BPCL, and HPCL — the three state-owned oil marketing companies operating at the front line of this subsidy squeeze.

Why the Government Is Holding Back

Officials said the Centre's policy stance is deliberate: it does not want Indian consumers to absorb the full impact of rising global crude prices through steep pump-price increases. A sharp hike, officials argued, would trigger a chain reaction across the economy — raising transportation costs, pushing up food prices, and squeezing household budgets at a sensitive moment for domestic demand.

Notably, this fuel subsidy effort is running alongside a fertiliser subsidy burden estimated at nearly ₹2.25 lakh crore, which the government is bearing separately to protect the agriculture sector from rising input costs. Together, the two form what official sources described as a deliberate buffer strategy against imported inflation.

The Geopolitical Trigger

Officials pointed to the escalating US-Iran conflict and the disruption of the Strait of Hormuz — through which 20 per cent of the world's energy exports transit under normal conditions — as the primary drivers of the current crude price surge. 'India has zero control over these geopolitical developments,' a source said, adding that the government is consciously trying to avoid transferring the entire external shock onto consumers.

India's annual crude oil import bill is estimated at ₹12–15 lakh crore, with every $10 increase in crude prices adding roughly $13–14 billion to the country's import burden. Government sources characterised the situation as a 'massive twin drain' driven by elevated oil and gold imports simultaneously.

Supply Position and Macroeconomic Context

Indian Oil officials said refineries are currently operating round the clock at maximum capacity, and the country holds 60 days of crude stocks — the maximum required — ensuring no near-term fuel shortage. Officials also noted that India's macroeconomic position is significantly stronger than during the 2012–13 oil crisis: the current account deficit stands below 1.5 per cent of GDP, compared with nearly 5 per cent during that earlier period, and inflation remains relatively contained.

Prime Minister Narendra Modi, sources said, has been pushing for lower fuel consumption patterns and reduced import dependence as a longer-term structural response, rather than relying on aggressive retail price hikes as the primary adjustment mechanism. How long the government can sustain daily losses of this magnitude without a larger correction will be the defining question in the weeks ahead.