WHENEVER in crisis, capital's oldest trick has been to manufacture a shock and let the working class absorb its impact. The fuel prices did what they always do whenever Washington decides to bomb someone – they went up. On February 28, 2026, the United States' unprovoked attack on Iran dragged the Gulf into a war where the rest of the world is having to pay the price. Tehran responded by choking traffic through the world's most important oil chokepoint, the narrow channel carrying a fifth of the planet's crude and a larger share of its LNG. Brent Crude, which had spent long stretches of the last two years in the comfortable seventies, spiked violently. Close to two-fifths of India's crude arrivals used to sail through that strait whose flow has been ravaged. Today, petrol in Delhi costs Rs.102.12 a litre and diesel Rs.95.20. The May 2026 nationwide price hike of Rs.3 per litre was called an "adjustment," made unavoidable due to the closure of the Strait of Hormuz after the US-Israel war on Iran. It is the Indian workers, and not the American war planners, who have to settle the bill through costlier fuel, transport, fertiliser, and vegetables reaching the mandi on a diesel truck. June's retail inflation rose to 4.38 per cent, food inflation crossed 5.32 per cent, transport inflation more than doubled (from 1.75 per cent in May to 4.31 per cent in June). Real wages, stagnant through a decade of jobless "growth," are being cannibalised in silence.

‘UNDER-RECOVERY’ - THE MANUFACTURED LOSS

The government claims that the Oil Marketing Companies (OMCs) are "bleeding," allegedly to the tune of Rs.1,000 crore a day. It further claimed that it was to benefit the public sector oil companies and to help them maintain a quantum of revenue, that the hike in fuel prices was made. Their defence of every fuel price hike has rested on a term - Under-Recovery.

To understand under-recovery, we must look at how it is calculated. Many of us are made to wrongly assume that it is the gap between what a refinery paid for crude oil and what it earns at the pump, if that was the case then it would be a real, auditable loss. Under-recovery is the gap between the domestic selling price and the Import Parity Price. In simple words, what it would hypothetically cost to import the same fuel, fully refined, from a Gulf port, freight, insurance, customs and all. If that benchmark rises and the pump price isn't raised to match, the OMCs declare a "loss", even though not one litre was actually imported at that price.  

Indian refiners process a blend of long-term contracted imports and spot cargoes, much of which was purchased well before the Hormuz disruption, and some domestic crude too, which carries no long-haul freight or war-risk premium. Until Washington's sanctions on Rosneft and Lukoil forced refiners to halt purchases, they also ran on Russian crude bought at a steep discount to Brent. None of that discount, that pricing, or that insulation shows up in the published "loss" figure. Hence, this much advertised loss is only notional, which is computed against a bill that nobody paid.

Tellingly, the government treats this notional figure as consequential when it wants to protect OMC balance sheets (the Special Additional Excise Duty cut), yet insists the same notional formula must be passed on to consumers when it works the other way.

WHO REALLY BENEFITS?

With the crisis that the centre conjured out of the under-recovery formula, it now attempts to present itself as its reluctant hostage by trying to pretend that without raising prices, the PSU navratnas such IOCL, BPCL, HPCL, etc. will collapse under their own books. But once we start tracing where the collected money goes, the story changes its shape. Only the Basic Excise Duty on petrol and diesel enters the divisible pool the Finance Commission is constitutionally obliged to share with the states. Everything layered atop it, including the Special Additional Excise Duty, the Road and Infrastructure Cess, the Agriculture Infrastructure Cess, etc. flows straight into the Consolidated Fund of India. This fund is entirely at the Centre's disposal, without a rupee owed to state governments. Successive Union Budgets have over time re-engineered fuel taxation where they shrink the shareable duty and then inflate the unshareable cess. Fiscal centralisation thus conducts a slow raid on cooperative federalism.

If under-recovery is actually about keeping IOCL, BPCL and HPCL solvent, the state could simply subsidise these companies and let retail prices fall closer to real cost, something the government's own numbers show is easily affordable once Import Parity Pricing is set aside. It does not, because a cost-reflective PSU pump price would threaten a smaller, far more powerful set of private players including Reliance's Jamnagar complex, the largest single-site refinery on earth, and Nayara Energy, heir to the old Essar Oil, both earning their real money on export-oriented margins rather than at the Indian forecourt.

The government's own recent manoeuvres give their game away. Facing a nearly 75 per cent crude spike in March, the finance ministry cut the Special Additional Excise Duty by Rs.10 a litre (a revenue sacrifice north of Rs.1.5 lakh crore annualised), explicitly to protect OMC margins. Two months later, with crude pressures still biting, the same government still found it necessary to pass a further Rs.3 per litre hike onto the commuter and the farmer. The two decisions show that the Centre would forgo its own cess revenue to protect the oil companies' books, but would let the household, rather than the exchequer, absorb the shock of a war it did not start.

Indian private refiners are profiting mainly by converting comparatively cheap crude (discounted Russian Urals until Washington's sanctions squeeze, or opportunistic spot Gulf cargoes) into refined products sold abroad at war-inflated margins. When Hormuz tightened and international diesel and jet-fuel prices soared, Reliance and Nayara had every commercial incentive to export rather than supply the domestic market. To ensure supply of fuel at home, the government imposed an export levy of Rs.21.50 a litre on diesel and Rs.29.50 on ATF. This levy only assured a supply, at the same elevated, formula-driven price that users were already being charged, and it did absolutely nothing to compel private pumps to sell to Indians at a discount.

That uniform, high, IPP-benchmarked retail price forms the core of this exercise. If companies like Indian Oil or Bharat Petroleum start pricing at real domestic cost, private pumps would lose competitiveness, and Nayara and Reliance's retail footprint would vanish along with a significant chunk of its refining profits. Oil price deregulation simply means that the state withdraws its protective hand from the consumer and places it, more firmly, on the shoulder of big capital to guarantee a price floor that lets private refiners export the cream and sell the skimmed milk back to Indian drivers at the price of cream. It is not difficult to decipher that the public sector is merely the hostage paraded before cameras and the actual beneficiaries who get to cash the cheque are the private players in Jamnagar and Vadinar.

FOREIGN POLICY CAPITULATION

Years ago, after Washington snapped its fingers over sanctions, India stopped buying Iranian crude and, in the process, it also abandoned a rupee-payment arrangement that had insulated New Delhi from a dollar-and-tanker chokehold. More recently, after Washington sanctioned Rosneft and Lukoil and stacked an additional 25 per cent "Russia penalty" atop existing tariffs, Reliance halted Russian crude at Jamnagar days ahead of the deadline, and the public sector refiners similarly followed. Discounted Russian oil, which had grown within a couple of years from a rounding error to nearly a third of the import basket, was suddenly surrendered almost overnight to the whims of US imperialism – and because of the spineless government that succumbed to those whims.

The Russian Ural crude barrels are purchased outside of the Hormuz's shadow and remain insulated from Gulf war-risk premiums. More importantly, they offer a crucial diversification option in crude sources that would have cushioned India against this shock. This diversification was dismantled under US pressure in the months before the shock arrived. An independent non-aligned foreign policy should have kept multiple low-cost, diverse crude streams open so that a war in the Gulf would never hold our economy to ransom. Instead, a government that continuously postures itself as civilisationally assertive, folded at the first tariff threat, abandoned first Iranian and then Russian oil, and now expects the Indian masses to pay the price at the pump for its own diplomatic capitulation and want of a spine.

WHAT SHOULD BE DONE

None of this can be separated from the broader architecture of the neoliberal phase of capitalism in India where public risk is paired with private profit, nominal sovereignty is paired with actual submission, deregulation as rhetoric is paired with re-regulation-for-monopoly as daily practice. The way every war illuminates whom a state was actually built to protect, the Strait of Hormuz crisis is merely illuminating this problematic architecture.

The demands that come out of this crisis should include re-regulation of fuel pricing, delinking it from the fictional Import Price Parity formula, and base retail prices on the real, blended cost of the crude that Indian refiners actually process. Reversing of the cess-driven plunder of the divisible pool, restoring to states their constitutional share of fuel revenue instead of leaving them to beg the Union government for compensation. Tax the windfall, crack-spread super-profits of Reliance and Nayara directly at source, rather than relying on export levies that just redirect supply without affecting the underlying loot. And redeploy the public sector companies for the welfare of the many, and not as a shock absorber for private refiners in an imperialist war, which the working people of India never supported, and Big Oil never stopped profiting from. It is the bare minimum any government owes a people who are made to pay twice over, for a war fought by others and profits pocketed by a few.