A widely forecast crude oil price plunge in 2026 could spell a bonanza for the government, presenting an opportunity to raise fuel taxes for a vital revenue boost after income tax and goods and services tax (GST) cuts or, if it allows state-run oil firms to lower pump prices, sharply curb inflation, said experts.
The US Energy Information Administration has projected an average price of $52 a barrel for Brent next year, down from the current $66, average price of $71 so far in 2025 and $80 recorded in 2024. Since 2004, the global benchmark for crude oil prices has averaged $52 or lower only twice — in 2015 and 2020.
Goldman Sachs and JP Morgan see Brent at $56 and $58, respectively, in 2026. For India, which spent $158 billion on crude imports in 2022-23, the relief is already significant: the April-August import bill was down 17 per cent year-on-year to $50 billion.
Likely Higher Fuel Taxes
If forecasts hold, refiners’ margins will swell, forex savings will balloon, the trade deficit will narrow, inflation will soften, gross domestic product (GDP) growth will get a boost and, most importantly, the government could see a massive revenue increase by raising fuel taxes.
The government is unlikely to rush to provide pump price relief, preferring first to gauge the impact of recent income tax and GST cuts on revenue, according to Sunil Kumar Sinha, professor of economics at the Institute for Development and Communication, Chandigarh.
“This government is far more sensitive to the fiscal correction roadmap than (those) in the past,” he said. The government believes fiscal credibility carries weight with foreign investors, he added, noting India’s recent S&P credit rating upgrade.
Lower oil prices would also support Prime Minister Narendra Modi’s capital expenditure and welfare agenda through his third term, said industry executives.
“Oil has been Modi’s great ally,” said one executive, pointing to the price collapse that began in June 2014 soon after Modi first became PM and enabled oil-sector reforms and sharp tax increases that funded government programmes.
Crude prices halved within a year of Modi assuming charge. Brent has averaged $69 a barrel during Modi’s years at the helm, compared with $83 during his predecessor Manmohan Singh’s decade.
Much of the benefit has gone to the exchequer: petroleum’s contribution to the Centre surged to ₹4.92 lakh crore (23 per cent of revenue) in 2021-22 from ₹1.53 lakh crore in 2013-14, before easing to ₹4.15 lakh crore (13 per cent) in 2024-25. Revenue rose as fuel taxes soared before moderating after the onset of the full-scale Russia-Ukraine war in February 2022.
