India significantly raises export taxes on diesel and jet fuel while lowering export taxes on gasoline starting July 16

The Indian Ministry of Finance has officially issued a notification. The adjustment of the windfall tax on refined oil exports this time will be formally implemented **from July 16th**, continuing the country's normalized mechanism of bi-weekly dynamic review and adjustment of the windfall tax. A reverse differentiated tax rate adjustment is implemented for three types of refined products: diesel, aviation turbine fuel (ATF), and gasoline. The specific changes are clear:

1. Diesel export windfall tax: Increased from the previous 8.5 rupees per liter to 15.5 rupees per liter, an increase of 7 rupees per liter, representing an increase of nearly 82%;

2. Aviation turbine fuel (ATF) export windfall tax: Raised from 7.5 rupees per liter to 14.5 rupees per liter, an increase of 7 rupees per liter, with a rise of 93%;

3. Gasoline export windfall tax: Reverse downward adjustment, reduced from the previous 4 rupees per liter to 2.5 rupees per liter, a decrease of 1.5 rupees per liter in export tax per liter, significantly lowering export costs.

This adjustment is the second tax rate revision since July. On July 1st, India had just lowered the export taxes on diesel and ATF and raised the export tax on gasoline. After half a month, the policy has been reversed again, fully reflecting India's approach of flexible regulation based on international refining spreads and domestic inventories. At the same time, the policy clarifies that the export of refined products to South Asian neighbors such as Nepal, Bhutan, Bangladesh, and Sri Lanka will continue to maintain the special tax-exemption policy unchanged.

Core Background of Policy Introduction

 1. Geopolitical disturbances boost global distillate arbitrage space

The core trigger for this round of adjustment comes from the rising geopolitical risks in the Middle East: Uncertainty in shipping through the Strait of Hormuz has intensified, Brent crude oil recently climbed to a one-month high of $84.73/barrel, and global diesel and ATF crack spreads have continued to rise, leading to a significant expansion in overseas export profits.

India is a major global exporter of refined products. Large refineries such as Reliance Industries, Indian Oil, and Bharat Petroleum possess tens of millions of tons of refining capacity. High overseas spreads drive refineries to tend to increase diesel and ATF sales abroad, putting continuous pressure on domestic refined product inventories. Diesel supports India's agriculture, freight, and industrial production, while ATF corresponds to the rapidly expanding domestic civil aviation market. The stability of supply for both is directly related to inflation and economic operation.

2. Domestic distillate inventories approaching the safety line

Industry data shows that domestic diesel and ATF inventories in India have continued to fall, below the conventional safety reserve threshold of 30 days. The government is concerned that continued large-scale exports by refineries will exacerbate domestic supply tightness and push up end-user consumer prices. Therefore, it has significantly raised the export costs of the two types of distillates to force refineries to prioritize domestic sales; meanwhile, domestic gasoline inventories are relatively ample, and overseas crack spreads are weak, so the gasoline export tax has been lowered to encourage refineries to increase gasoline exports abroad, balancing the overall operating income of refineries.

3. Positioning of the windfall tax mechanism: Regulating excess export profits

Since 2022, India has established a windfall tax on refined oil exports (Special Additional Excise Duty SAED), adopting a bi-weekly assessment model. Its core role is to levy excess export earnings of refineries during periods of geopolitical oil price surges, balancing domestic energy security and national fiscal revenue. The government has repeatedly emphasized that the export windfall tax is levied only on oil sold for export, and **domestic terminal retail gasoline and diesel pricing are not affected by this adjustment**, which will not directly increase the cost of oil for the public.

Analysis of Impact on Various Market Parties

1. On Indian domestic refining enterprises

- Diesel and ATF export profitability is severely compressed: Export taxes have nearly doubled, the profit margin for refineries selling distillates abroad has been significantly narrowed, and they will subsequently actively reduce overseas shipment volumes and increase domestic market supply;

- Gasoline export benefits are released: After the tax burden is lowered, the competitiveness of gasoline exports improves, and refineries will increase gasoline exports to hedge against the profit losses from diesel and ATF, leading to a clear differentiation in the structure of refined product exports.

2. On global oil commodities

- Diesel and ATF: Expectations of contracted Indian export supply will support international diesel and ATF spot and futures prices in the short term;

- Gasoline: India's willingness to export has increased, the marginal supply of global gasoline circulation has increased, slightly suppressing the room for international gasoline price rises.

3. On the South Asian refined product trade pattern

India is the core supplier of refined products in the South Asian region. After the increase in diesel and ATF export costs, export quotes for distillates to Southeast Asia, the Middle East, and Africa may be raised; meanwhile, the price advantage of gasoline exports has expanded, which will further seize market share in regional gasoline exports.

Views of Industry Organizations

Market analysis points out that this differentiated taxation is a typical regulatory means of India's "prioritizing domestic sales and adjusting exports". During cycles of geopolitical oil price volatility, India avoids a one-size-fits-all policy by flexibly adjusting product-specific windfall taxes: on one hand, locking in necessary distillates to guarantee domestic livelihood and industry, and on the other hand, using gasoline exports to stabilize refinery cash flow, balancing the triple goals of energy security, corporate profitability, and fiscal revenue growth. If global crude oil and refined product crack spreads fluctuate significantly again later, India will adjust tax rates again in the regular assessment window two weeks later.