Indian oil refiners hit by export taxes on fuel exports

India has imposed special taxes on petrol and diesel exports to protect domestic supplies, accusing private oil refiners of cashing in on high international prices while “drying out their pumps” in the domestic market.

Friday’s move will curb the windfall profits that were expected at India’s biggest private refiners, including Mukesh Ambani’s Reliance Industries and the partly Rosneft-owned Nayara Energy, which have been scooping up barrels of discounted Russian crude shunned by European buyers.

Shares in Reliance dropped more than 7 per cent on Friday, wiping $6bn off Ambani’s net worth according to Forbes, while explorer and refiner Oil and Natural Gas Corporation slid 13.5 per cent.

As the rupee plumbs new lows against the dollar, breaking past Rs79 to the greenback on Friday, India is contending with tight domestic fuel supplies and struggling to control inflation, which is running above 7 per cent year on year.

Priyanka Kishore, head of India at Oxford Economics, said refiners’ margins had “blown up”.

“Clearly the incentive to export has gone up massively,” Kishore added, “because your largest refiners are independent, they’re not state-owned, there is a greater incentive to go and export”.

“What India has done is like Malaysia curtailing its chicken exports. It’s essential commodity protectionism in some sense,” Kishore said. “They’ve not banned it, they’ve just made it more difficult to send it out rather than supply the domestic market.”

In a statement announcing the scheme to tax exports of petrol at Rs6 per litre, diesel at Rs13 and aviation fuel at Rs6 per litre., India’s finance ministry said that “as exports are becoming highly remunerative, it has been seen that certain refiners are drying out their pumps in the domestic market”.

With global energy prices soaring as the war in Ukraine continues, the government said companies would be required to show that they are reserving product for domestic sale — at least half the quantity of petrol they are shipping abroad, and 30 per cent of diesel.

The finance ministry hit large domestic crude producers with a windfall tax of Rs23,250 per tonne, saying the companies were profiting by selling oil pumped in India to domestic refineries at international prices.

To curb a “sudden surge” in gold imports, which totalled 107 tonnes in May and have eaten into India’s current account deficit, the finance ministry raised customs duty by 4.25 percentage points to 15 per cent.