India’s oil demand growth this year could tumble to its lowest level since the pandemic as the fallout from the Middle East conflict saps fuel consumption in the world’s third-biggest crude importer.

Oil demand growth is forecast at 78,000 barrels a day, according to Kpler Ltd., which has slashed its pre-war estimate by almost 40 per cent. Beyond the Covid-19-hit 2020, that would be the lowest in a decade. Another consultant, Rystad Energy, projects diesel demand growth will plummet to a trickle.

India is heavily reliant on imported crude and fuels, and the Iran war has led to surging energy prices that are squeezing state-run refiners and weighing on the broader economy. A weaker currency is compounding the pressure, and Prime Minister Narendra Modi has urged people to save fuel by working from home, using public transport, and avoiding non-essential overseas travel.

State-owned oil refiners have made modest fuel-price increases to cushion the blow, but they pale in comparison to the surge in international crude since the war started at the end of February. Processors have been losing 6 billion rupees ($63 million) a day selling diesel, gasoline and liquefied petroleum gas below market rates, according to oil ministry estimates.

The state refiners are logging higher sales because their prices are lower than those offered by private operators, but a key industry group representing truck operators says elevated fuel costs have idled a big portion of the fleet.

“The cost of transportation has increased and customers aren’t willing to pay for that,” said Rajendra Kapoor, the president of All India Motor and Goods Transport Association, which represents trucking and logistics firms that move agriculture, industrial raw materials, and retail products. He estimated that there’s been a “15 per cent-20 per cent reduction in fleet movement.”

Kpler has reduced its gasoline demand growth estimate by 40 per cent to 38,000 barrels and lowered its forecast for diesel by a third to 42,000 barrels a day. Rystad Energy sees an even bigger hit to the industrial fuel, slashing its forecast to 4,000 to 5,000 barrels a day from 50,000 to 60,000 barrels. 

Overall, Rystad sees oil product demand at 4.1 million barrels a day compared with its pre-war estimate of 4.2 million barrels, according to Pankaj Srivastava, senior vice president of commodity markets. The consultant halved its estimate for jet fuel growth and reduced its projection for gasoline by more than 40 per cent. 

The immediate outlook for fossil fuel use is bleak, but the broad consensus is the slowdown is temporary rather than structural. Unlike China, which is undergoing a rapid electrification of its transport sector, India is expected to rely heavily on gasoline and diesel for a much longer period.

“We would characterize the impact as a temporary drag on growth rather than permanent demand destruction,” said Stuti Jhunjhunwala, a India-based oil market analyst at Energy Aspects. 

The consultant has lowered its oil product demand growth forecast by around 140,000 barrels a day compared with its pre-war outlook, primarily on the huge disruptions to LPG. Energy Aspects expects limited impact on diesel and gasoline demand, marginally trimming its forecast because retail price increases have been “relatively well controlled versus the move in global markets.”

More stories like this are available on bloomberg.com

Published on June 3, 2026