Crude prices fall, but the prices at the pump don’t. While India’s automobile Industry pays the Price.

Every morning at 6 AM, India’s state-run oil companies revise fuel prices. Every morning, roughly 300 million vehicle owners wake up to find the prices unchanged! Petrol in Delhi stands at 102.12 per litre as of June 5, 2026 up by over Rs. 7 in a single month, after four rounds of price increase in 10 days as the US-Iran conflict sends crude surging price post $100 dollars per barrel.

Asking a simple question: if the raw material (crude oil) gets cheaper in the international markets, should the final product (petrol/diesel) not get cheaper at the pump?

In almost every other economy, the answer would be yes. In India’s fuel sector, the answer is consistent, silent and politically convenient: not necessarily.

This is not just an inconvenience but it is a structural tax on mobility and has left a deep scar on India’s USD 147.58 Billion Automobile Industry.

Before understanding the 2008 oil crash, let us take a close look at the Indian automobile sector. The Indian Automobile sector has grown from a small protected market into one of the world’s most dynamic. Total vehicle Production had grown from 1.19 million units in 1989 to over 20.6 million units in 2007, nearly an eighteen times increase in just twenty years. The industry was valued at approximately $35 billion, contributing 3.1% to India’s GDP (Note: Sale of second hand vehicles are not included in GDP calculation) and directly and indirectly employs over 37 million people.

A story of crude oil, In July 2008, Brent crude oil touched $138 per barrel the highest price the world had ever seen. India’s consumers felt it. Prices of petrol rose. International price rise also impacted domestic prices, which is fair.

But let’s consider what happened after 2014, Global crude oil prices fell by over 70%, from over $100 per barrel to just $28 by January 2016. An extraordinary windfall gain for a country like India which imports over 70% of its oil. But did the consumers see a proportionate cut in the rates? They did not! Instead, the central government raised excise duty by 11 times. By September 2018, global crude prices were still lower than what they were in 2014, still petrol in Delhi had risen from Rs. 71 to Rs. 80 per litre.

Chart 1: Crude oil price vs petrol prices in India

In May 2020, as Covid-19 caused crude prices to crash, futures briefly went negative touching $37 per barrel, the government raised excise duty on petrol by Rs. 10 per litre on petrol and by Rs. 13 per litre on diesel. The falling prices of crude internationally served as a windfall gain for the government. The consumer price inflation remained constant at 6-7%.       

This is why fuel prices are not just a macroeconomic issue, it is a deeply rooted social issue. SIAM President Kenichi Ayukawa stated in 2021: “Unfortunately, with the fuel price going up, we will be getting a negative impact in our industry. How long this situation will continue, we don’t know. But we expect fuel prices to become reasonable as soon as possible.”

Chart 2: Central Excise Duty on Petrol

Two-wheeler vehicles (scooters and motorcycles) make up the largest market. India was the world’s second-largest two wheeler market, producing over 15 million units a year. For the Indian middle class, a motorcycle is not a luxury, but a statement of economic wellbeing. Companies like Hero Honda and Bajaj auto with revenues crossing Rs. 10,000 crore were not just companies, they were social standards in the Indian Market.

Passenger vehicles were growing fast, led by Maruti Suzuki with a dominant 40% market share. For commercial vehicles, Tata Motors’, the backbone of our economy, moving goods from farm to plate and from factory to market. Tata Motors posted a net profit of 2,029 crore in FY2008, prompting the government to increase infrastructure spending.

This smooth running automobile industry, dependent greatly on fuel, was hampered by the 2008 oil shock.

The first oil crash, where Brent crude surged to $138 per barrel in July 2008. India’s wholesale price inflation hit 12.8% in August 2008, the highest in a decade. The rupee fell. Borrowing costs increased. And the automobile sector felt the hit almost immediately. A situation similar to what we can see today.

As the Director of SIAM said in the annual reports, “Two wheeler and three-wheeler growth reduced significantly during the 2008 oil shock period. Passenger vehicles managed to hold their own, while commercial vehicles growth remained virtually stagnant.” ~Director, SIAM

The numbers tell a story. Tata Motors reported a 50.7% decline in Net profit to Rs. 1000cr. in FY2009, compared to Rs. 2000cr. In the previous year. Net revenues fell by 10.7% as commercial vehicles sales (trucks, buses) reduced due to high fuel costs, tight credit, and a dry freight market. Domestic commercial vehicle sales fell from 3,12,935 units in FY08 to 2,65,373 units in FY09.

Chart 3: India’s Automobile Sales

This asymmetry hurts the common person the most. Think about who buys a two-wheeler in India? It is not a luxury purchase. This is a school teacher in Patna, a vegetable vendor in Surat, a nurse in Mysore. For these buyers, the decision to purchase is directly linked to how much they would spend on fuel every month. A Rs. 10 hike per litre can cost a difference between buying and waiting.

Now, let’s look at the history of price shocks, a pain India bears repeatedly. It is a story that begins in 1973, repeats itself every decade at the same regularity, and now it’s happening again. Each shock has a similar wave, global disruption, rising crude oil, spiking inflation, reduced automobile sales, different policies and the common people left to count the cost.

The 1973 Arab-OPEC oil embargo and the 1979 Iranian Revolution together disrupted the global crude prices, pushing India’s petroleum budget to nearly two-third of the entire import budget. CPI Inflation rose to two digits. The automobile sector was still at its early stage, but the entire economy felt the ripples: rising input costs, fertiliser bills and transport expenses. India’s response was to invest in self-sufficiency through the expansion of Coal India, ONGC explorations and nuclear power research.

Then came the 1990-91. The Iraqi invasions of Kuwait sent crude above $40 per barrel for several months at a time. A time where India’s foreign reserve budget had also fallen to less than $1Billion barely enough to cover three weeks of imports. The government was forced to airlift 47 tonnes of gold to London and Zurich as collateral to raise foreign loans. Inflation at 13%, fiscal deficit at 8% of GDP. The oil shock did not cause the 1991 balance of payments crisis alone, but was an added expense to the already suffering economy. This also became a trigger for India’s strongest trade policy: The LPG: Liberalization, Privatization and Globalization which helped to open India’s automobile sector to the world.

The 2008 commodity supercycle brought Brent crude to $138 per barrel. When crude oil collapsed after September 2008, there was no relief either, because of the global demand crash which simultaneously hurt India’s exports, capital flows and corporate investments. The INR fell 10% within a span of weeks. The automobile industry which found itself growing in double digits was found to be stuck at crawling growth rates.

In 2022, Russia’s invasion of Ukraine pushed Brent above $120. India responded to one of its most strategic moves, moving towards discounted Russian crude, which rose from under 2% of India;s imports in 2021 to over 30% in 2023. Indian refiners bought cheap, refined it into products and exported much of it to Europe. The macro shock was stabilized, but the consumers still saw petrol above Rs. 100, and the automobile industry still had faced the shock from the rising input costs.

On February 28, 2026, coordinated United States and Israeli airstrikes on Iran aimed to target Iran’s nuclear and ballistic missile programme which triggered the most serious disruption to global energy markets. Iran declared the strait of Hormuz, the narrow waterway through which nearly 20% of the world’s sea travelled crude and LNG flowed, was closed. Iran carried out attacks on ships attempting to pass, killing crew members on the vessels.

The result has suppressed vehicle demand, particularly among price-sensitive buyers of two-wheelers and entry-level cars, the very segments that represent India’s demographic mass and the aspirations of its middle class. In Q1 FY2025–26, SIAM reported an industry-wide decline of 5%, with two-wheelers down 6% and motorcycles down 9.2%.

Energy analysts warn that if the crisis extends past mid-2026, a price hike of Rs.8-15 per litre would increase inevitably. Every $10 dollar per barrel rise in crude costs India an additional $12-14 Billion annually in import bills and the crude basket has risen by over $80 in a month.

For the automobile industry, the implications are layered and alarming. SIAM President Shailesh Chandra stated plainly in April 2026: “If this crisis goes on for long, it will definitely be a significant headwind for growth.” BYD India, which imports all its cars has already announced a price hike of up to 3% from May 1, 2026, citing the conflict’s impact on logistics and materials costs. AutoForecast Solutions expert Sam Fiorani noted that automakers operate on very thin margins: “There’s just no room to absorb dramatic changes in input costs such as steel, plastics, and freight and ultimately, prices to the consumer rise.”

A solution hidden in this crisis is EV (Electric Vehicles). Analysts note that sustained fuel cost increases are driving consumers to increasingly consider hybrid or electric vehicles to escape the anticipated fuel cost surge. Total two-wheeler sales in India crossed 21.4 million units in FY2025, surpassing the pre-COVID peak but a significant and growing share of that is now electric. The crisis, paradoxically, may be doing more to accelerate EV adoption in India than any government scheme has managed alone.

Two-wheelers lead the EV charge, contributing 58% of all EV sales. Three-wheelers have gone further: over 60% of all new three-wheelers sold in India are now electric, transforming the economics for auto-rickshaw drivers who were most brutally hit by CNG and diesel price hikes. The government’s PM E-Drive scheme, PLI for battery manufacturing, and Phase-II FAME with ₹800 crore for charging infrastructure are building the scaffolding. GST on EVs has been cut from 12% to 5%.

Chart 4: India EV Registrations

But honesty demands this caveat: for most Indian families, an electric scooter still costs more upfront than a petrol vehicle. Charging infrastructure outside cities remains thin. The EV revolution is underway; it will take another decade to move the consumer from the pump.

The automobile industry is not asking for charity. It is asking for a rational price regime, one where the benefits of cheap global crude are shared with the buyers. It is asking for petroleum to be brought under GST. It is asking for faster EV Infrastructure so that the next generation buyers can escape from the pump completely.

Until that happens, every time Brent crude falls and Delhi’s petrol price does not, a potential motorcycle buyer in Nagpur or Ludhiana thinks twice. And India’s automobile engine, the one that could be the world’s third largest, would take longer than it should. A middle class dream, deferred at the pump, one litre at a time.