Second fuel hike in a week as crude prices remain elevated

India’s state-run fuel retailers hiked petrol and diesel prices for the second time in a week — ending years of price controls as the war drives crude costs higher, Reuters reports. Prices rose by about INR 0.9 (USD 0.009) per liter on Tuesday, taking pump prices to INR 98.6 (USD 1.03) for gasoline and INR 91.5 (USD 0.9) for diesel.

IN CONTEXT- Last Friday, India broke a four-year retail price freeze by announcing a jump in pump prices by INR 3. The increase remains modest relative to a near 50% rise in global crude prices, leaving state-run refiners, including Indian Oil, Bharat Petroleum, and Hindustan Petroleum, to absorb daily revenue losses of around INR 10 bn (USD 104 mn).

The price will partially offset those losses as refiners will continue losing roughly INR 7.5 bn (USD 78 mn) daily, according to Petroleum Ministry’s Joint Secretary Sujata Sharma (watch, runtime: 3:12). Further staggered increases are anticipated, similar to the calibrated hikes seen in 2022 — when pump prices were revised 13 times in a fortnight following the Russia-Ukraine war. No government bailout package for refiners is currently under consideration, Sharma clarified, despite mounting pressure on their balance sheets.

The timing is politically sensitive

Politics of pricing energy: India’s opposition leaders argue the government delayed revisions through recent state elections to avoid voter backlash. Now, with Brent crude above USD 110 / bbl, the Modi government is facing growing pressure to balance consumer protection with fiscal and energy realities. Meanwhile, Prime Minister Narendra Modi has urged citizens to ration fuel and reduce discretionary spending.

Why it matters: The financial distress of Indian refiners has already triggered disruptive supply-chain rationing. India instituted strict supply control measures on commercial LPG, with April consumption down 16.2% y-o-y. Any prolonged capital squeeze at these Indian oil majors threatens to delay multi-bn-USD downstream and petrochemical expansion projects — all tied to long-term crude supply agreements and strategic JVs with Gulf national oil companies.

Fuel demand trends diverge: Petrol consumption rose 6.36% y-o-y in April to 3.6 mn tons, while diesel demand remained largely flat. LPG consumption, however, fell sharply after supply restrictions on commercial cylinders, with allocations only gradually being restored.

Airlines seek fuel relief

India’s airlines are now seeking the same price protection long extended to retail consumers. Carriers including Air India, IndiGo, and SpiceJet have asked state-run refiners to defer any increase in aviation turbine fuel (ATF) prices for domestic flights until the Iran conflict stabilizes, The Economic Times reports. The proposal for a hike is under discussion between refiners and the Ministry of Petroleum and Natural Gas for a decision before 1 June.

Pressure on airlines intensifies: State refiners are reportedly selling domestic jet fuel at about USD 1k per kiloliter while incurring losses of roughly USD 955 per kiloliter. Fuel accounts for nearly 40% of airline operating costs in India. Meanwhile, a weaker INR is inflating USD-denominated expenses such as aircraft leases and overseas airport charges.

Turbulent times ahead: Indian carriers are already thinning flight schedules and warning of outright suspensions. The conflict has also disrupted air corridors to Europe and North America, forcing Indian carriers into longer routes and higher fares that are beginning to depress demand.