What Happened
- India's diesel exports rose approximately 20% in March 2026, driven by exceptionally high gross refining margins (GRMs) for middle distillates following the outbreak of the US-Israel-Iran war.
- Global crude prices surged from roughly $70 per barrel in late February to above $122 per barrel, while diesel and jet fuel crack spreads (the premium over crude) reached $50–60 per barrel — well above historical norms.
- Indian refiners, particularly Reliance Industries, BPCL, HPCL, and IOC, redirected more production toward diesel and aviation turbine fuel (ATF) for export to capture these abnormal margins.
- The government subsequently reimposed export duties — Rs 21.50 per litre on diesel and Rs 29.50 per litre on ATF — to curb export incentives and safeguard domestic supply, while simultaneously cutting excise duty by Rs 10 per litre to shield domestic consumers.
- The windfall tax mechanism, originally introduced in July 2022 and abolished in December 2024, was effectively revived through these export levies.
Static Topic Bridges
Gross Refining Margins (GRM) and India's Refining Sector
GRM is the difference between the total value of petroleum products a refinery produces and the cost of the crude oil it processes, expressed per barrel. It is the primary measure of refinery profitability. India operates one of the world's largest refining complexes, with a total capacity exceeding 250 million metric tonnes per annum (MMTPA). State-owned refiners (IOC, BPCL, HPCL) dominate domestic fuel supply, while Reliance Industries operates the world's largest single-location refinery at Jamnagar, Gujarat, which is heavily export-oriented.
- India's refining capacity makes it a net exporter of petroleum products — it imports crude but exports refined fuels.
- Crack spreads for diesel and jet fuel are a key indicator: high crack spreads incentivise refiners to maximise output of these products and export rather than sell domestically.
- GRMs of $50–60/barrel in March 2026 were multiples of the typical $8–12/barrel range, creating extraordinary export incentives.
- The SEZ status of Reliance's Jamnagar export refinery creates a key policy distinction: SEZ units were partially exempt from windfall taxes in 2022 and the same question has arisen under the 2026 export duties.
Connection to this news: The 20% jump in diesel exports reflects refiners responding rationally to price signals — routing output where margins are highest. The government's export duty move represents the classic policy tension between allowing refiners to capture global profits versus ensuring domestic energy security at stable prices.
Windfall Tax: Policy Design and Objectives
India introduced a windfall profit tax (SEUT — Special Additional Excise Duty on Exports) in July 2022 when global crude and product prices spiked after the Russia-Ukraine war. The tax targeted: (a) domestic crude oil producers earning excess profits, and (b) refiners exporting fuels rather than supplying the domestic market. It was scrapped in December 2024 when global prices normalised, and effectively revived in March 2026 under a different legal mechanism.
- Windfall taxes are levied when commodity producers earn profits substantially above long-run average returns due to external price shocks, not their own efficiency.
- India fortnightly recalibrated the windfall tax rate based on average international prices over the preceding two weeks — a dynamic mechanism designed to track market conditions.
- The 2026 reimposition as export duties (rather than a windfall tax per se) targets exports specifically, leaving domestic sales untaxed, which is a different design from 2022.
- Revenue implications: export duties flow to the central government; they also affect the downstream revenue of states that collect VAT on fuel.
Connection to this news: The government's swift policy response — cutting excise duty to protect consumers while imposing export levies to limit outflows — mirrors the 2022 playbook, demonstrating India's evolving toolkit for managing energy price shocks.
India's Energy Security and Petroleum Products Trade
India is simultaneously the world's third-largest oil importer and a significant net exporter of refined petroleum products. This dual position means global price shocks cut both ways: they raise import costs for crude oil while potentially boosting export revenues for refined products. Energy security policy must balance these competing pressures.
- India imports roughly 5 million barrels per day (b/d) of crude oil, about 85–87% of its total crude requirement.
- Petroleum products exports (diesel, petrol, ATF, naphtha) earn significant foreign exchange — a critical offset to the import bill.
- The Iran war's impact on India: crude import costs up sharply; diesel/ATF export revenues up sharply; net effect depends on volumes and duty policy.
- India's government has simultaneously cut petrol/diesel excise duty (domestic price support) and raised export duties (domestic supply protection) — deploying both fiscal instruments at once.
Connection to this news: The diesel export surge illustrates how India's large refining sector can become a pressure valve for global supply disruptions, but also why the government must use policy levers to ensure that domestic consumers — not just refiners — benefit from India's refining capacity.
Key Facts & Data
- India diesel export increase in March 2026: approximately 20%
- Diesel crack spread (GRM for diesel): $50–60 per barrel (vs normal $8–12/barrel)
- Crude oil price range: ~$70/barrel (pre-war) → ~$122/barrel (peak March 2026)
- Export duty reimposed: Rs 21.50/litre on diesel; Rs 29.50/litre on ATF
- Excise duty cut simultaneously: Rs 10/litre on petrol and diesel
- India's refining capacity: over 250 MMTPA
- Reliance Jamnagar refinery: world's largest single-location refinery
- Windfall tax originally introduced: July 2022; abolished: December 2024; revived in new form: March 2026
- India's crude import dependence: ~85–87% of requirement