Petrol and gasoline prices in India were raised by ₹3 per litre on Friday, May 15, following a record four-year break in significant price changes. With the exception of a small ₹2 reduction prior to the 2024 elections, a price freeze had been in effect since April 2022. However, what is the reason for the unexpected increase in the price of gasoline and diesel? The rising violence in West Asia and the ensuing pressure on the world energy market are the main causes of the abrupt increase. Let’s delve deeply.
Why did India hike diesel and petrol prices now?
India increased fuel rates nationwide by Rs 3 per litre on day 77 of the Iran conflict in West Asia. A mix of financial and geopolitical considerations led state-owned Oil Marketing Companies (OMCs) IOCL, BPCL, and HPCL to make this decision. Why? The plain answer is that local price control finally caught up to global geopolitics.
- Conflict in West Asia: The main cause is the crisis in West Asia and the extreme strain it has put on the Strait of Hormuz, one of the most important chokepoints for oil transit worldwide. Due to increased shipping hazards brought on by the war, which began on February 28 with strikes on Iran by the US and Israel, the price of crude oil has risen from about $70 per barrel prior to the crisis to over $110.
- This resulted in a significant increase in the import burden for India, which depends on imported petroleum for around 87% of its total crude oil demand.
- Growing “under-recoveries” are to blame for the increase in fuel prices: State-run oil marketing firms such as IOCL, BPCL, and HPCL had protected consumers for months by absorbing the blow. However, those losses reportedly skyrocketed into enormous under-recoveries as global prices increased and supply routes became more constrained, putting increasing pressure on businesses to cease bearing the entire load.
This basically indicates that the price increase is more of a delayed adjustment than a regular price change. The action also comes in response to the government’s increasing public messages. In retrospect, Prime Minister Narendra Modi’s recent call for residents to use public transportation, conserve fuel, and cut back on wasteful fuel use seems more and more like preparedness for more difficult energy realities.
