By Dipak Kurmi
The headlines emerging from West Asia and Eastern Europe in early 2026 carry a persistent and uncomfortable subtext: the era of crude oil prices determined by the simple interplay of global supply and demand has largely vanished. In its place is a landscape where energy costs are aggressively shaped by geopolitical sanctions, systemic shipping disruptions across vital maritime corridors, and the strategic calculations of producer cartels that find higher price levels increasingly congenial for their fiscal reserves. As Brent crude continues to hover near the USD 95 to USD 100 per barrel range—a plateau it has maintained for several months—historical precedents from the global shocks of 2008 and 2022 suggest that such geopolitical premia are rarely transient. For a nation like India, which remains profoundly dependent on the global energy market, importing nearly 88 to 90 per cent of its total crude oil consumption as of the current fiscal year, these fluctuations are far from abstract academic concerns. The sensitivity of the Indian economy to these shifts is quantifiable and immediate, as every USD 10-per-barrel increase in the global price of crude typically necessitates an upward adjustment of approximately 4.5 per litre at the domestic fuel pump.
Despite this inherent volatility, the retail price of fuel in India has remained remarkably static for an extended period, reflecting a deliberate policy of managed stability. This “apparent calm” is not the result of a sudden immunity to global shocks but rather a strategic absorption of price pressure by the nation’s primary oil marketing companies, namely Indian Oil, Bharat Petroleum, and Hindustan Petroleum. While this intervention has shielded the common citizen and the broader logistics sector from the immediate sting of inflation, it has come at a significant cost to the corporate health of these entities. Current estimates suggest that these companies have been operating under substantial under-recoveries, particularly on diesel and petrol, which fundamentally erodes their profitability. The long-term danger of such an arrangement is the systematic depletion of investment capacity within the energy sector. Resources that are currently being sacrificed at the retail level to maintain price ceilings are, by definition, resources that cannot be deployed toward the critical modernization of refineries or the capital-intensive energy transition initiatives, such as green hydrogen and renewable integration, that India must navigate to meet its net-zero commitments.
The broader economic implications of maintaining an artificially static pricing regime extend beyond the balance sheets of state-owned enterprises. One of the most insidious effects is the attenuation of the price signal itself. In a functional market, prices serve as a vital feedback mechanism that influences consumer behavior and operational efficiency. When fuel prices remain unchanged regardless of global scarcity, consumption patterns fail to adjust dynamically; households do not feel the economic incentive to recalibrate their commuting choices or adopt more fuel-efficient habits, and logistics operators are less inclined to optimize their routes or invest in fleet upgrades. Over time, the economy forgoes the incremental adjustments that cumulatively build systemic resilience to external shocks. Furthermore, the public recognizes these patterns of deferred adjustments, leading to a sense of uncertainty regarding when the “inevitable” correction will occur, which can be more destabilizing than modest, regular price movements that follow a predictable logic.
Transitioning toward a rule-based stabilization mechanism is therefore a matter of practical necessity rather than ideological preference. The objective is to replace ad hoc, discretionary interventions with a transparent, formulaic framework that provides predictability to all stakeholders. A viable model would involve defining a “normal” price band for crude oil—for instance, between USD 65 and USD 90 per barrel—within which domestic retail prices would be permitted to adjust freely in direct alignment with global market movements. If global prices were to breach the upper limit of this band, an automatic sharing mechanism would be triggered: a portion of the price hike could be absorbed through a pre-calibrated reduction in central excise duties, while the remainder is passed through to the consumer. Conversely, when global prices fall below the lower threshold, a percentage of the windfall could be diverted into a dedicated price stabilization fund, ensuring that the “good years” effectively finance the intervention requirements of the more difficult ones.
India is uniquely positioned to operationalize such a sophisticated mechanism due to its world-leading Digital Public Infrastructure (DPI). The evolution of the “JAM” trinity—Jan Dhan, Aadhaar, and Mobile—has created a robust foundation for targeted social security that did not exist during previous energy crises. By 2026, the Direct Benefit Transfer (DBT) ecosystem has achieved a Welfare Efficiency Index (WEI) of 0.91, ensuring that 91 paise of every rupee spent reaches the intended recipient. This capability allows the government to maintain market-linked price signals for the general population while providing surgical, calibrated financial assistance to vulnerable groups such as farmers, small-scale transport operators, and low-income households. Instead of distorting the entire economy through blanket price freezes, the state can use its digital architecture to protect those most at risk, thereby maintaining fiscal discipline without sacrificing social equity.
Furthermore, the reform-oriented governance of the past decade, characterized by an emphasis on institutional capacity-building and transparency, provides the ideal enabling environment for such a shift. For the oil marketing companies, a rule-based pass-through mechanism would offer the financial predictability required to plan multi-billion-dollar investments in the energy transition. For state governments, the framework would encourage a more disciplined approach to Value Added Tax (VAT) adjustments, aligning sub-national fiscal policies with the national stabilization objective. Ultimately, the success of this transition depends on public trust. Just as the nation successfully navigated the complexities of the Goods and Services Tax (GST) and the iterative refinement of the Aadhaar ecosystem, the implementation of a rule-based fuel mechanism is a technically modest task that leverages existing data and policy instruments. In an increasingly fragmented and uncertain global energy market, India’s resilience will be defined not by its ability to eliminate volatility, but by its capacity to manage it with clarity, consistency, and institutional foresight.
(the writer can be reached at dipakkurmiglpltd@gmail.com)
