How Will US-IRAN War Impact Petrol, Diesel, CNG Prices, Affect Car Prices & Indian Auto Industry?

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Trivia Time

The Bretton Woods Agreement of 1944 played a key role in ending colonization in the entire world. The agreement was also instrumental in giving India her independence.

Disclaimer — Geopolitical Background

Do note that a large portion of my geopolitical understanding comes from reading the 4 books of the American geopolitical expert and author, Peter Zeihan. The reason I respect Zeihan’s opinion is because he has managed to predict 3 things (that I can recall off the top of my head) with precision.

1. Russia-Ukraine War: In one of his books, published in 2014, The Accidental Superpower, he predicted that Russia would attack Ukraine latest by 2022. This is a spooky level of precision.
2. Warships As Security: In one of his other books, he has predicted that the world will go back to pre-Bretton Woods era as the US will stop taking care of the world’s cargo in the high seas. The US recently announced that they will escort cargo ships through the strait of Hormuz. (Also Read: Trump wants U.S. Navy to escort tankers through the Gulf)
3. Scrambled Egg Out Of The Middle East: Zeihan also predicted that Iran would turn the Middle East into a scrambled egg. Now, the recent US-Iran war may not have been started by Iran but Iran has definitely scrambled the Middle East by attacking pretty much all US allies in the region.

When someone is able to predict so many things so far in advance, his opinion should carry some weight. However, you should note that I’m not in 100% agreement with Peter Zeihan. The  author thinks the BRICS UNIT currency is a joke because the transactions happening in UNIT are barely a rounding error in comparison to the Dollar’s turnover. Meanwhile, I believe that this is by design. If the UNIT saw sudden and widespread adoption, then the US might start to think of Indian people as “highly oppressed” and in desperate need of “liberation”.

Some of Zeihan’s predictions are yet to come true as they are too far into the future. Here are the titles of the 4 books for your reference:

• The Accidental Superpower (2014)
• The Absent Superpower (2017)
• The Disunited Nations (2020)
• The End Of The World Is Just The Beginning (2022)

International Crude

The following table presents the movement of Brent Crude against India’s auto index (Nifty Auto):

As you can see, the Indian auto sector’s movement is inversely co-related to the international crude prices and US Dollar exchange rates.

Indirect Attacks On BRICS

Let’s get one thing straight, the US is generally too touchy about its dollar. Any time a country starts to trade in any currency other than the US Dollar, the US starts to feel like they need a regime change or they need democracy or something.

With the Iran attacks, the US is indirectly attacking the BRICS nations. Brazil, Russia, India and China, the founding nations of BRICS are the key players. For Brazil, the recent attack on Venezuela and the abduction of their president seems like a good way to corner Brazil so they don’t try something cute.

The close relationship between Iran and Russia also means that attacks on Iran will send a message to Russia. However, China and India, world’s 2 largest countries by population, are the prime indirect targets of the attacks on Iran. China imports a lot of their energy and have a dependency on Middle Eastern oil. They also sell 1.4 million cars every year in the Middle Eastern countries. That’s 15-20% of their auto sector exports.

Meanwhile, the attack on IRIS Dena warship, which was sunk by US submarines, suffered the attacks just outside of the Indian Exclusive Economic Zone. So, India should remember who’s the boss but India can’t use this as an excuse to challenge America. Besides, Iran has been a close ally of India for the past several decades. The war and the IRIS Dena attack are messages to Indian leadership; attempts to piss us off but not enough to start a conflict.

Clearly, the US is afraid of the BRICS nation and that fear is visible in its actions.

Indian Fuel Price History

Now, let’s look at the Indian fuel price history. Back in 2012, when the Brent Crude hovered around Rs. 5,000 and Rs. 6,500, petrol used to cost Rs. 66 and diesel was Rs. 41. In 2024, when Brent crude was again in the same price range, petrol costs around Rs. 96 in Gurgaon while diesel costs around Rs. 88. That’s a 31% hike in petrol prices and 115% increase in diesel prices despite the crude oil being in the same price band of Rs. 5,000 to Rs. 6,500.

Fuel Price Coupling

That’s because in 2014, the government decided to couple the fuel prices to dollar and crude so that the government doesn’t have to absorb the risk of volatility of crude and dollar rates. The prices of petrol and diesel gradually kept going up and up till they caught up to what the government had planned.

Covid

Then came Covid. During the corona, the government needed funds to keep things moving while literally no one was working, except the healthcare people, of course. So, the fuel prices stayed high. When people did start driving and moving out of their houses and oil demand went back to normal, Russia attacked Ukraine and oil prices once again shot up. So, the government started moving prices higher and higher.

Russia-Ukraine War

Once the crude prices cooled off, the government didn’t bring down the petrol and diesel prices and didn’t pass on the benefit to the consumer as they had promised in 2014. While crude prices remained quite low and at 2012 levels, we still continued to pay high taxes on transport fuel. While actually, we may have purchased much cheaper oil from Russia, the government meanwhile have filled up their coffers with large amounts of cash as they have had fat margins on petrol and diesel for the last few years.

Why The Push Towards CNG?

Natural gas in the international markets costs Rs. 250 - 300 per MMBTU. One Million British Thermal Units is around 22kg of CNG. That means the CNG should cost around Rs. 12-14 per kilogram. Even with compressing and shipping costs, it should cost no more than Rs. 20 — excluding any bribing business.

Moreover, CNG is trash — quite literally. Not many nations want CNG. They all want oil, though. CNG is a byproduct of oil extraction and releasing it into the atmosphere is really bad. Much worse than burning it. That’s why there are international norms and guidelines against releasing it in the atmosphere.

The following table presents the crude oil and natural gas movement since the start of US-Iran war:

As you can see, natural gas has less than half the volatility compared to that of crude oil. CNG has even fatter margins for the government as it sells for Rs. 82 in Gurgaon. No wonder the government wants to push hard in favour of CNG vehicles.

The biggest markets for CNG are India and China but India also has some domestic reserves. So, natural gas doesn’t fluctuate as much as crude does in the international markets.

Crude Oil Expectations

Brent Crude has shot up from around Rs. 6,500 to 11,000 in a matter of days since the war started. With attacks on refineries, oil depots and oil fields, it becomes difficult for oil supply to resume in full capacity in a matter of days even if the war were to end right now. These heavy machinery and equipment can’t be replaced in a few days or even weeks.

So, we should prepare for high oil prices in the coming months and expect no immediate relief.

If oil were to touch Rs. 8,000 - 9,000 and reverse in a few days, then the Indian government would not have any need to change the petrol and diesel prices. But if the crude prices hold in that range for more than a couple of weeks or exceed these levels, then we should prepare for higher petrol and diesel prices.

At closer to $100 for a barrel of crude, it becomes highly profitable for the US to resume shale oil extraction in their own country. So, they might want crude oil prices to sustain higher.

Indian Fuel Price Predictions

While the government has a lot of cash buffer accumulated with F-A-T taxes on fuel in the last 3 years, the buffer will eventually run out.

Petrol Diesel Price Hike

The crude prices are likely to stay above Rs. 8,000 per barrel and possibly even go higher than Rs. 9,000. So, we should prepare for a 5-10% hike in petrol and diesel prices.

Ethanol Adulteration

With high crude prices, ethanol might start to cost, relatively less than petrol. Further, to reduce dependence on imported oil, the government may start to accelerate ethanol adulteration and take it to 30% before the targeted timeline of 2030.

CNG Price Hike

In addition to petrol and diesel, even CNG may witness a 5-10% price hike. While natural gas prices are unlikely to go too high in the international markets, it has fat margins, which helps compensate for the thinning profits from petrol and diesel.

Even with higher prices, CNG might continue to appear as a good option for people with high usage as the petrol-CNG price delta will stretch further making CNG cheaper.

With higher petrol and CNG prices, we can expect the higher upfront cost of a CNG car to break even sooner thus offering a justifiable total cost of ownership (TCO). The following table presents the km-to-breakeven figure for a Swift petrol vs CNG with real-world V3Cars tested mileage figures:

Biogas Adulteration

For CNG car owners, just like ethanol adulteration in petrol, we can start to see accelerated timelines for biogas adulteration in CNG.

EV Fuel Price Hike?

Most of our electricity is produced from coal and we have our own coal reserves with only 20% import dependency. Even that does not come from the Middle East. We don't see any electricity price hikes in the 2026 calendar year. Besides, electricity price hikes will greatly affect not only the EV owners but also a large number of people who vote.

Indian Auto Sector Predictions

In 2025, the government gave a huge tax break to petrol, diesel and CNG cars less than 4-meters long. Meanwhile, the electric cars got no help from the 2025 GST rate cut. This increases the price gap between electric and comparable petrol cars; thus making it even more difficult for car buyers to justify making the jump to electric cars.

This suggests that the government wants us to buy petrol, diesel or CNG cars but skip electric cars as much as possible.

Are We In Recession?

The last time cars got a considerable tax cut was back when we were in the 2008 recession. If the government chose to cut taxes on cars to a substantial degree, we should take this as a hint that we may already be in a recession. We just don’t have access to the indicators to validate this claim other than the fact that the auto sector is getting tax cuts. Otherwise, auto sector is the punching bag in terms of regulations and tax levies.

Switch To Electric & CNG

With higher petrol, diesel and CNG prices, the switch to electric cars may start to make more sense than it does now. So, we may see electric cars start to gain market share post fuel price increase.

With EVs like the new Tata Punch, even in the Rs. 10.0 - 15.0 lakh price band, you can expect an electric car to offer 300km+ real-world range. Now, we can safely say that they have gone mainstream. After factoring in the 100kWh of free public charging and a free home charger, even the EVitara only comes across as a car costing only a shade more than Rs. 15.0 lakh (ex-showroom).

CNG will remain a solid option despite a substantial price hike. CNG cars will also gain a marginally in terms of market share as they will offer superior TCO compared to petrol cars.

With higher fuel prices, we are likely to see the overall car sales shrink in the calendar year from March to December 2026. The auto sector is already fragile. Otherwise, the government would not have stepped in to cut taxes and help revive it.

According to our sources, the well-priced, well-loaded, good-looking and brand-new Seltos is already getting discounts up to Rs. 20,000. And this, despite the recent tax cuts. This shows the weakness of the Indian auto industry.

Maruti Suzuki and Tata Motors are in the best shape right now to leverage this shift in favour of CNG and electric cars. While Maruti Suzuki have a strong grip in the CNG segment, their well-priced eVitara confirms that they mean business. They are here to stay and support their electric vehicles.

Tata Motors have already had a good command over electric cars sales. With innovations in the CNG cars such as usable boot space and automatic transmission, they are in a strong shape to maintain strong sales in CNG cars as well.

Other carmakers may be good in CNG or in EVs but not in both while also having a decent demand for their petrol cars.

Also Read: Top 5 Features Of Tata Punch EV 2026

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Helpful Links:

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