Will Petrol-Diesel Become Costlier After India-US Trade Deal? Will The Prices Go Up?

As Trump announced that India will stop buying Russian oil and instead buy Venezuelan oil, the question that comes to people's mind is whether the prices of petrol and diesel will go up.

Based on the trade deal announced on February 2, 2026, there is a strong possibility that petrol and diesel prices in India will face upward pressure if India fully stops buying Russian oil in favor of Venezuelan and US crude.

While the deal brings significant benefits to Indian exporters through lower tariffs, the "oil swap" is economically complex. Here is the breakdown of why your fuel costs might change:

1. The "Discount Gap"
The biggest risk to fuel prices is the loss of the "Russia Discount."

The Russian Reality: Since 2022, Russia has sold crude to India at $10 to $20 below international Brent benchmarks. This cheap oil allowed Indian oil companies to keep petrol and diesel prices relatively stable despite global volatility.

The Venezuelan/US Alternative: While Venezuela offers some discounts, they are rarely as steep or consistent as Russia's recent offers. Furthermore, buying oil from the US means paying full market price plus significantly higher freight (shipping) costs due to the distance.

Financial Impact: Estimates suggest that switching entirely away from Russian oil could increase India's import bill by $9 billion to $12 billion annually. If oil companies pass this cost on to consumers, petrol and diesel prices could rise by ₹3 to ₹7 per liter, depending on global crude rates at the time.

2. Refining Challenges
Not all oil is the same. Indian refineries have spent the last three years optimizing their machinery to process specific Russian blends (like Urals).

Venezuelan Crude: This oil is "heavy and sour"-thick and high in sulfur. Only a few high-tech Indian refineries (like those owned by Reliance or Nayara) can process it efficiently.

The Cost: Other government-owned refineries (IOCL, BPCL, HPCL) may need to spend more on "blending" or technical upgrades to handle Venezuelan oil, which adds to the final cost of the fuel.

An executive from the Indian Oil Corporation Ltd (IOCL) had said recently that the Indian refineries are capable of processing Venezuelan crude. He told The Times of India: "So our refineries are varied, our refineries are robust. They can process in an admixed manner, but we can process Venezuelan crude if and when it is made available."

3. The Government's "Buffer" Strategy
The Indian government has two ways to prevent a massive price hike at the pump:

Reducing Excise Duty: The government might cut its own taxes on petrol/diesel to absorb the higher import costs.

The "50% vs 18%" Trade-off: The US deal removes a massive 50% tariff on Indian exports. The government may decide that the economic boost from increased exports (textiles, jewelry, IT) is worth the cost of slightly higher oil, and may use tax revenue from those booming sectors to subsidize fuel prices.

If the transition is sudden, fuel will likely get costlier. However, if the government uses the savings from the broader trade deal to lower domestic fuel taxes, you might not feel the full impact at the petrol pump.

The Last Hike On Petrol, Diesel

The Modi-government had increased excise duty by ₹2 per litre for both petrol and diesel in April 2025. However, the Ministry of Petroleum and Natural Gas had informed the masses that the retail prices of petrol and diesel would remain the same.

It may be recalled that the Centre had hiked excise duties on petrol and diesel before 2025 in May 2022, raising rates by Rs 8 per litre on both fuels amid global energy volatility. Prior to that, significant increases occurred in November 2021 (Rs 7 on petrol, Rs 5 on diesel) and multiple times in 2020-2021, totalling over Rs 23 on petrol and Rs 19 on diesel cumulatively from May 2020.