Analysis: Brent is back above $100. Who pays for India's frozen fuel prices?
This is an analysis piece. It reflects the author's assessment of publicly reported facts.
Brent crude closed at $101.21 a barrel on 9 September, its first finish above $100 since July 2024, after the US military destroyed five Iranian tankers and Iran continued to harass shipping around the Strait of Hormuz, CNBC reported. India's crude basket averaged $108.91 on 8 September. Yet the price on the pump at your local petrol station has not moved. That is not a free lunch; it is a bill being routed elsewhere.
The numbers
Business Standard estimated on 9 September that at September's average crude price, state-run oil marketing companies are losing about Rs 5 a litre on petrol and Rs 23 a litre on diesel, with a further under-recovery of roughly Rs 200 on every domestic LPG cylinder. Diesel is the larger problem: it is the fuel of trucks, tractors, generators and railways, and its losses are four to five times petrol's.
This is the second squeeze of the year. When Hormuz was effectively closed in early 2026 after US and Israeli strikes on Iran, the IEA called it the largest supply disruption in the history of the oil market. Per-litre losses then reached about Rs 105 on diesel and Rs 24 on petrol by early April, according to ORF, before OMCs raised prices in a series of May hikes that took Delhi diesel to Rs 95.20 and petrol to Rs 102.12.
Why prices are frozen
India imports about 88 per cent of its crude, and around 30 per cent of that passes through Hormuz. The government has no direct control of pump prices on paper, but in practice the three big OMCs move together and rarely without political clearance. With Bihar-style state polls behind and Uttar Pradesh, Punjab, Uttarakhand and Goa heading to elections in early 2027, an immediate pass-through is unlikely. The RBI, meanwhile, reportedly sold at least $8 billion of reserves last week to steady the rupee, which makes every imported barrel dearer still.
The three ways the bill gets paid
First, OMC balance sheets. Indian Oil, BPCL and HPCL earned handsomely when crude was cheap in 2025; the government's implicit deal is that they now give some of it back. That works for a few months, not a year.
Second, the exchequer. In past spikes the Centre has cut excise duty or, as in 2022, compensated OMCs for LPG losses after the fact. Either route costs the fiscal deficit at a time when the rupee is under pressure.
Third, consumers, eventually. The May hikes show that once losses become "unsustainable", in the refiners' own word, prices move in steps.
What should happen
The honest policy is a modest, early pass-through combined with targeted LPG support for the poorest households, rather than a long freeze followed by a sharp jump. Freezes are politically comfortable and economically regressive: they subsidise diesel for everyone, including the SUV owner, while the fiscal cost crowds out spending that would help the poor more. The Hindu's analysis this week put it plainly: retail prices remain frozen while losses shift to OMC balance sheets. The question for the government is not whether the bill gets paid, but who it wants to pay it, and when.