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India has cut fuel taxes as global oil prices continue to surge amid the West Asia conflict
Crude prices have risen sharply, raising concerns over inflation and economic slowdown
Analysts warn a prolonged conflict could trigger stagflation and deepen energy shocks
Export duties have been imposed to ensure domestic fuel supply and limit price spikes
Experts say such measures offer short-term relief but shift costs to public finances
A prolonged conflict in West Asia could trigger stagflation and deepen global energy shocks, analysts warn, as governments move to shield consumers from rising fuel costs. In India, the government on March 27 cut central excise duty on petrol and diesel by Rs 10 per litre each, finance minister Nirmala Sitharaman announced in a post on X (formerly Twitter).
The move comes as global crude prices have surged from about $70 per barrel to around $122 over the past month amid the conflict. The government has also imposed export duties of Rs 21.5 per litre on diesel and Rs 29.5 per litre on aviation turbine fuel to ensure adequate domestic supply.
Sitharaman wrote that the decision was aimed at protecting consumers from rising fuel costs caused by global supply disruptions. She added that Parliament had been notified and that Prime Minister Narendra Modi had prioritised shielding citizens from volatility in essential commodities.
Union Minister of Petroleum and Natural Gas Hardeep Singh Puri said the government had chosen to absorb the financial impact rather than pass on the full price rise to consumers.
“The Modi Government had two choices — either increase prices drastically for citizens of India as all other nations have done or bear the brunt on its finances so that Indian citizens are insulated from international volatility,” he wrote in an X post on March 27.
According to the minister, the government has taken a major hit to tax revenues to offset losses faced by oil companies, estimated at Rs 24 per litre for petrol and Rs 30 per litre for diesel during the current price surge. Export duties, he added, were imposed because soaring global prices could otherwise encourage refiners to prioritise overseas markets over domestic supply.
Measures such as tax cuts and export duties do not directly reduce global oil prices, but they can ease domestic pressure in the short term, according to energy analysts. “When governments step in to shield households and industries from high energy prices, the fiscal costs can be enormous,” Apratim Sahay, co-director of the Net Zero Industrial Policy Lab at Johns Hopkins University, told Down To Earth earlier. “These measures can also delay structural adjustments in energy systems.”
Analysts warn that if the conflict persists for several months, the global economy could face stagflation — a combination of high inflation and slowing growth. Rising energy prices, combined with weaker economic activity, can lead to unemployment, reduced consumer spending and slower industrial production.
A disruption lasting three to six months could trigger such conditions globally, Sahay warned.
Measures such as tax cuts and export duties do not directly lower global oil prices, but they can reduce the pressure on domestic fuel prices in the short term. When the government cuts excise duties on petrol and diesel, the reduction is immediately reflected in retail prices because taxes make up a large share of the pump price in India.
This means that even if international crude prices rise sharply, the government can offset part of the increase by lowering taxes, allowing consumers to feel only a portion of the price hike. In effect, the burden of the price shock shifts from households and businesses to the government through reduced tax revenues.
Export duties also discourage refiners from selling abroad when global prices rise, pushing more fuel into the domestic market and helping prevent shortages and price spikes.
However, analysts emphasise that such interventions are largely short-term buffers and do not address the structural drivers of vulnerability to energy price shocks. If high global prices persist, the fiscal cost of shielding consumers can rise significantly and domestic prices may eventually need to adjust. As a result, many experts argue that reducing dependence on imported fossil fuels is the more durable way to protect economies from geopolitical energy disruptions.
India’s response to prolonged disruption could involve several strategies, Sahay further said when asked about possible measures, going forward, these include adjusting subsidies, rationing fuel or revising pricing policies, ensuring the safety of millions of Indian nationals working in Gulf countries, and securing energy supply routes.
India may also seek safe passage for its tankers through the Strait of Hormuz, similar to arrangements negotiated during the tanker conflict of the Iran-Iraq war in the 1980s.
According to Andreas Sieber, head of political strategy at 350.org, a global climate advocacy organisation, the main risk lies in prolonged disruption. “The longer these disruptions continue, the higher prices are likely to rise and the more real the risk of shortages becomes,” he told DTE.
The risk is particularly significant for Asia, where a large share of Chinese and Indian oil imports comes from the Gulf and passes through the Strait of Hormuz, a 33-km-wide maritime corridor between Iran and Oman, underscoring its central role in supplying energy to major consuming markets in Asia, Europe and beyond.
While both countries maintain strategic reserves covering roughly 50 days of supply, Sieber said such reserves cannot fully shield economies from immediate price shocks.
Countries such as Thailand and Singapore obtain roughly 20-25 per cent of their energy from the Gulf, while Pakistan is also heavily dependent on imports from the region. “Many of these countries have reserves that last only a few days,” Sieber said.
Oil markets have reacted sharply to the conflict, with benchmark Brent crude climbing toward $120 on March 9, the highest since Russia's invasion of Ukraine in mid-2022, and experiencing volatility since then. The surge has dramatically altered market expectations. Before the crisis, Rystad Energy had projected Brent to average around $60 per barrel in 2026, reflecting a forecast supply surplus of about 2.6 million barrels per day.
Rystad on March 9 outlined two possible scenarios. In a two-month war scenario, where the Strait of Hormuz gradually reopens by the end of March, Brent could rise above $110 per barrel in April before easing as supply recovers, averaging about $87 per barrel in 2026 and declining toward $70 by year end.
In a four-month war scenario, however, Brent could reach around $135 per barrel by May before easing to about $85 per barrel by December, resulting in an average price of roughly $100 per barrel in 2026.
Other analysts warn prices could climb even further if the disruption persists. Macquarie Group said oil could reach $200 per barrel if the conflict drags on until June and the Strait of Hormuz remains closed. Goldman Sachs projects Brent could average about $115 per barrel in April if supply remains tight.
On March 27, prices eased slightly after US President Donald Trump announced a 10-day pause in strikes on Iranian energy infrastructure. Brent futures were trading near $107.97 per barrel while US West Texas Intermediate (WTI) was around $94.08 per barrel.
Despite the temporary pause, markets remain volatile. WTI prices have risen about 40 per cent since US and Israeli strikes on Iran began on February 28, while Brent has climbed more than 48 per cent over the same period.
The war has already removed about 11 million barrels per day of oil supply from global markets. The International Energy Agency described the crisis as more severe than the oil shocks of the 1970s combined with the gas disruptions triggered by the Russia-Ukraine war. The agency has authorised the release of 400 million barrels from strategic reserves to stabilise supply.
Nearly 20 per cent of global oil and gas trade passes through the Strait of Hormuz, and Iran is reportedly considering legislation to impose transit fees on vessels using the route. Any direct attacks on oil or liquefied natural gas infrastructure in the Gulf could further tighten supply.
The crisis has renewed debate about structural vulnerabilities in fossil fuel–dependent energy systems. Sieber of 350.org said such shocks strengthen the case for accelerating renewable energy deployment. During the early phase of the conflict, countries in Europe with higher shares of renewables, such as Spain, experienced smaller price spikes and lower volatility. Globally, roughly three-quarters of countries depend on fossil fuel imports, leaving them exposed to geopolitical disruptions, with developing economies often hit hardest.
In India, this vulnerability is particularly visible in the cooking energy sector. A February 2026 report by the International Institute for Sustainable Development (IISD) finds that the country’s clean cooking transition has relied heavily on fossil fuels such as liquefied petroleum gas and piped natural gas. According to data from the Union Ministry of Petroleum and Natural Gas, LPG consumption doubled from about 15 million tonnes in 2011-12 to roughly 31 million tonnes in 2024-25, with more than 93 per cent of the increase met through imports.
The IISD report warns that continued reliance on LPG risks locking India into an import-dependent pathway. It recommends expanding electric cooking technologies in urban areas while scaling biogas-based cooking systems in rural regions using locally available organic waste. Surveys cited in the report suggest about 10 per cent of urban households and around 3 per cent of rural households already use electric cooking appliances, though usually alongside LPG rather than replacing it.
Modelling in the study suggests wider adoption of electric cooking could significantly reduce imports over time. Under an accelerated transition scenario, urban household LPG demand could fall by up to 50 per cent by 2050. However, the transition faces barriers including high upfront appliance costs, concerns over electricity reliability and limited repair services.
More broadly, analysts say electrification remains one of the most effective ways to reduce exposure to geopolitical energy shocks. Ashish Khanna, director general of the International Solar Alliance, told DTE that expanding electrification across sectors such as transport, cooking and industry could reduce vulnerability to disruptions in fossil fuel supply chains by allowing countries to rely more on domestically produced renewable electricity.