Material Insights · Understanding the Material World

Crude oil and Public administration, defence and security

Governments both burn oil, above all in their armed forces, and live off it: India's petroleum sector paid about ₹7.58 lakh crore to central and state exchequers in 2024-25, so an oil shock hits public budgets through tax cuts, state oil company losses and defence fuel bills at once.

Crude oil (energy) and Public administration, defence and security (industry): 4 relationships.

How they are linked

1. Fuel for defence and services

Physical flow · Strong · Crude oil → public administration, defence and security

Aircraft, ships and military vehicles run on oil products with no ready substitute in the field, and police and emergency fleets do too; the site rates crude 5 of 5 on criticality for armed forces and 4 of 5 for police and emergency services.

  • 5 of 5 criticality for armed forces and defence ministries
  • about 80 million barrels fuel bought by the US Department of Defense each year, 2026 report
  • about 2.2 billion gallons jet fuel burned by the US military each year since 2021, against about 227 million gallons of diesel

The US Department of Defense is by far the US federal government's largest fuel consumer, and most of what it burns is jet fuel. Fuel use cannot be cut in operations, so price rises become unplanned costs: the average price it paid rose from about US$ 154 a barrel in October 2025 to about US$ 196 in April 2026, which could add more than US$ 1 billion of unplanned cost in 2026.

Enterprise types that depend on it:

  • Armed forces and defence ministries: Aviation, naval and vehicle fuel (criticality 5 of 5)
  • Police, courts and emergency services: Patrol vehicle fuel (criticality 4 of 5)
  • Public works and infrastructure contractors: Bitumen and diesel (criticality 3 of 5)

Sources: Material Insights; ABC News (Good Morning America)

2. Fuel tax revenue

Policy · High in India · Oil consumption → government revenue

Petrol and diesel carry central excise and state VAT, so fuel sales are one of the largest and easiest-to-collect revenue sources for both levels of government.

  • ₹7,58,224 crore petroleum sector contribution to central and state exchequers, 2024-25
  • ₹2,76,563 crore central excise duty on petroleum, 2024-25
  • ₹3,09,097 crore state sales tax and VAT on petroleum products, 2024-25

States collected more from petroleum in 2024-25 than the centre did from excise, which makes fuel tax a shared and politically sensitive base: any cut to support consumers in a price spike costs both levels of government revenue.

Sources: Petroleum Planning and Analysis Cell (PPAC)

3. Budget absorbs oil shocks

Cost and price · Strong · Crude price rise → lower taxes and state oil company losses

When crude spikes, the government holds retail fuel prices down by cutting excise and letting state-owned oil marketing companies absorb losses, turning an oil shock into a fiscal cost.

  • ₹13 to ₹3 excise duty on petrol per litre, cut from 26 March 2026 (diesel ₹10 to nil)
  • about ₹1.23 lakh crore revenue forgone over 78 days after the 2026 excise cuts
  • about ₹1,000 crore a day oil marketing companies' estimated losses before the May 2026 price rises

In 2026 the excise cut did not lower pump prices; it offset oil company losses, estimated at about ₹48.8 a litre in March. Retail prices were later raised four times in May 2026, and daily losses fell below ₹600 crore.

Sources: Moneylife; Angel One

4. State owns oil companies

Geography and ownership · Medium · Government is shareholder in oil firms

The central government earns dividends from the petroleum sector's state-owned producers and marketers, so it gains from their profits in good years and shares their losses when they are asked to hold prices.

  • ₹22,095 crore dividend income to the central government from the petroleum sector, 2024-25
  • ₹46,226 crore corporate and income tax from the petroleum sector, 2024-25, down from ₹57,493 crore

Corporate and income tax from the sector fell about 20% between 2023-24 and 2024-25 while dividends rose, so the government's income from ownership moves with oil company margins, which themselves turn negative in a crude spike, as in 2026.

Sources: Petroleum Planning and Analysis Cell (PPAC); Angel One

For investors

Key learnings

  1. India's petroleum sector paid about ₹7.58 lakh crore to exchequers in 2024-25, so fuel tax policy is a fiscal lever that moves with every oil shock.
  2. In 2026 the government cut excise rather than let pump prices rise at once, which protected oil marketing companies only partly: they still lost about ₹1,000 crore a day before May price rises.
  3. Defence fuel demand is inelastic and mostly jet fuel: the US military burns about ten times as much jet fuel as diesel, so military activity adds steady demand for middle distillates whatever the price.

What to track

  • Central excise rates on petrol and diesel: Cuts signal the government is absorbing an oil shock (As notified · Ministry of Finance, CBIC)
  • Oil marketing company under-recoveries: Rising losses signal price hikes or support to come (Monthly · company disclosures, PPAC)
  • Petroleum contribution to exchequer: Shows fiscal dependence on fuel taxes (Annual · PPAC)

For policymakers

Key learnings

  1. Fuel taxes are a large shared revenue base, ₹4.25 lakh crore for the centre and ₹3.33 lakh crore for states in 2024-25, so a shift to electric vehicles will erode it over time.
  2. Holding pump prices in a shock costs the budget quickly: about ₹1.23 lakh crore of revenue in 78 days in 2026.
  3. Defence readiness depends on secure jet fuel and diesel supply, so strategic reserves and refinery resilience are a security question as well as an energy one.

What to track

  • Revenue forgone from excise cuts: Measures the fiscal cost of oil shocks (As announced · Ministry of Finance)
  • Petroleum share of central and state revenue: Shows exposure to falling fuel volumes in the transition (Annual · PPAC, state budgets)

India

India's petroleum sector contributed ₹4.25 lakh crore to the centre and ₹3.33 lakh crore to states in 2024-25, and in March 2026 the centre cut excise on petrol from ₹13 to ₹3 a litre and on diesel from ₹10 to nil to cushion state oil companies.

Sources

  1. Public administration, defence and security: materials, Material Insights (2026)
  2. Contribution to central and state exchequer, Petroleum Planning and Analysis Cell (PPAC) (2025)
  3. Petrol excise duty down to ₹3, diesel nil: no change in retail prices as govt aims to cut OMC losses, Moneylife (2026)
  4. Government forgoes ₹1.23 lakh crore revenue to back OMCs amid petrol, diesel duty cuts, Angel One (2026)
  5. Higher gas prices fueling pain at the Pentagon, ABC News (Good Morning America) (2026)