The Bhutanese Leading the way.
From 16th March 2026 onwards, there has been a major hike in fuel prices in petrol and diesel. Before that, the price for petrol in Bhutan was Nu 63.29 per liter in Thimphu and diesel was Nu 70.18 per liter, and it is now Nu 102.40 per liter for petrol and Nu 98.31 per liter for diesel in Thimphu.
However, the actual increase is even more as the government is providing a price support of Nu 36.94 per liter for diesel. Bhutan so far as spent Nu 1.16 billion (bn) in fuel price support since 22nd March till 1st May 2026. Of this, petrol is Nu 58.81 million (mn) and diesel is 1.099 bn.
The explanation being given so far for the extraordinarily high prices is the Iran War, and the Royal Government of Bhutan (RoGB) even expressed gratitude to the Government of India (GoI) for continuing the supply of fuel to Bhutan.
However, The Bhutanese decided to take a closer look at why Bhutan is paying such high prices, and if the Iran War and the global oil prices are the only reasons.
No price breakup in Bhutan
This paper first asked the Department of Trade (DoT) for a breakup of the fuel prices that lands at Phuentsholing from the Indian state-owned Oil Marketing Companies (OMCs) which are Indian Oil Corporation (IOCL), Hindustan Petroleum (HP) and Bharat Petroleum (BP), but the only break up the department has is the cost of fuel and delivery charges, which ranges from Nu 1.15 to Nu 2.50 per liter.
A source said that the DoT had been asking for a detailed breakup of the fuel prices for the last four years from the OMCs in almost every meeting the DoT has with them, but it has been unsuccessful till date.
A break up of the oil prices would allow Bhutan to find out the base cost, value addition cost and then the profit margin of OMCs.
This was not so much an issue in times before the Iran War when the price of fuel supplied to Bhutan was low, and in fact lower than the Indian prices at the pump (due to higher domestic taxes in India), but now, it has become a matter of national urgency and importance given the huge financial implications.
What MoU says
The Memorandum of Understanding (MoU) signed between Bhutan and India on the ‘General Supply of Petroleum, Oil, Lubricants (POL) and related products from India to Bhutan’ under Article 4 titled ‘Price Information and Payment Modality’ says, “Government of India shall arrange for the concerned Public Sector Undertakings (PSUs) to provide detailed invoice breakup every fortnightly or as and when requested by the Royal Government of Bhutan.”
The MOU signed in March 2024 is available on the website of the Ministry of External Affairs of India.
The OMCs in not giving the ‘detailed invoice breakup’ as requested for by Bhutanese officials is not in keeping with the above MoU.
When it comes to pricing, the only clue given in the five-page MoU under Article 4 is “The Government of India shall facilitate the exports from India to Bhutan, at ex-factory price excluding all domestic levies and taxes.”
While this section clearly states fuel to Bhutan will not attract domestic Indian taxes and levies, it does not spell out what is the basis of the ‘ex-factory price.’
Looking for answers in Nepal and a hidden cost
In the absence of a fuel price break up and explanation of ‘ex-factory price,’ the paper had to find the basis of the pricing for Bhutan. Here, there was a lead from the Nepal government owned Nepal Oil Corporation (NOC) which has a General Supply Agreement (GSA) with India and gets petrol and diesel at around the same price as Bhutan.
Given the same price charged by Indian OMCs to both countries, it can be safely assumed that the same formula used for Nepal is also used for Bhutan. For example, the 30th April 2026 landing price at Phuenthsoling (before local Bhutanese taxes and dealer commission and costs) charged for Bhutan for diesel is INR 121.61 per liter while it is Nepali Rupees 193 or INR 120.67 for Nepal, and in the case of petrol it is INR 87.15 per liter for Bhutan and for Nepal it is Nepali Rupees 137 or INR 85.67 per liter. Bhutan is slightly higher due to transportation costs as Nepal also gets fuel via a pipeline.
Though the Nepal-India GSA is a confidential document that was even denied to Bhutan’s Foreign Ministry a few years ago, the reporter could access certain details within it through a source in Nepal, and this information also gives insight into how oil is priced for Bhutan too.
It seems that the OMC’s base price for oil to Bhutan and Nepal is not based on the price of the cheaper international crude oil, but on two more expensive international indicators for refined diesel and petrol separately.
The paper further verified this with the data from the website of the Petroleum Planning and Analysis Cell (PPAC) under India’s Ministry of Petroleum and Natural Gas.
The two benchmarks
For diesel, the base or benchmark is Arab Gulf Gasoil, which is the price of actual diesel after being refined and loaded at Gulf ports for export. The current Arab Gulf Gasoil price for finished diesel used by the OMCs for Bhutan and Nepal is USD 188.74 per barrel.
In comparison, the Indian crude oil basket is comprised of a mix of sweet grade brent crude oil and sour grade Oman and Dubai crude oil imported by the country. The April average price is USD 114.25 per barrel. This cheaper benchmark is not used for Bhutan and Nepal.
For petrol, the benchmark used for Bhutan and Nepal is ‘92 RON Singapore Gasoline’, which is again finished petrol product loading in Singapore’s ports. The current petrol 92 RON Singapore Gasoline price is USD 127.49 per barrel.
The 14 days average of the above two international indicators (Gulf for diesel and Singapore for petrol) are charged to Bhutan and Nepal as the base rates.
On the above two diesel and petrol indicator base rates international freight is added, ocean loss, letter of credit cost, insurance, marketing margin of 2 percent of the total cost, transportation price from the Indian port to the border but even for Nepal what is hidden is the marketing cost component where the real increase happens.
The source in Nepal said that Nepal itself has been asking the Indian OMCs the detailed breakup of the prices, and especially the hidden ‘marketing cost’ component for the last two years, but there has been no response.
Bhutan and Nepal treated as commercial destinations
One would assume that oil sold by Indian OMCs to Bhutan and Nepal is based on the purchase of raw crude oil, its refining and transportation costs, other costs and a profit margin. If this was followed then petrol and diesel rates to both countries would be much lower as they are not subject to local Indian taxes.
The reality is that both Bhutan and Nepal are treated as foreign commercial markets like the rest of the world, like Europe, South-East Asia, etc., and hence the higher benchmarks used.
The ironical thing here is that the above arrangement works to Bhutan and Nepal’s benefit when international markets and prices are stable with fuel costs at the pump in both countries lower than even India.
However, on the flip side, both countries are now finding out that these benchmarks and costs added to them by the Indian OMCs is almost cripplingly expensive when there is an international crisis.
Transparency issues and efforts to find answers
At the same time, the issue is not just of benchmarks and international prices, but a complete lack of transparency on how the Indian OMCs charge and bill Bhutan and Nepal. Simply put, both countries have no idea on the actual costs of supply versus the profit margin being kept by the OMCs.
The Nepal source, who is a highly placed official in the Nepal Oil Corporation, said, “We are trying to find out their ‘marketing cost’ component as we suspect the huge increase in prices is due to the OMCs hugely inflating this component.”
The official said that concerned with the high prices, Nepal Oil Corporation management plan to discuss and seek a meeting with their Indian counterparts on the recent and high costs which are not sustainable.
The official revealed that Nepal has spent Nepalese Rupees 5.740 bn or INR 3.586 bn just in the last 15 days as fuel subsidies.
This paper asked the RGoB on if it has or will take up the matter of the high costs with India or the OMCs.
The government said it has taken up the matter with the GoI to enquire if export duties were being imposed on the export of POL products to Bhutan.
“GoI has confirmed that excise duty is not imposed on the POL products exported from India to Bhutan. The relevant technical agency and the domestic fuel dealers are in regular touch with the OMCs and it has been informed that the high costs are due to the volatility in international oil prices,” said a reply from the RGoB.
Prices can spike more again
Prices have come down for both Nepal and Bhutan on 30th April 2026 due to the ceasefire, but the worry is that it could well shoot up again as international prices are again racing upwards as the blockade of the Strait of Hormuz extends.
The previous high in Bhutan was from 16th to 30th April 2026 with Nu 111.09 per liter for petrol of which the government supported Nu 8.19 bringing the pump price to Nu 102.90 and Nu 199.66 per liter for diesel with Nu 101.35 price support bringing the pump price to Nu 98.31.
How actual OMC prices should be much lower
In an ideal world, if we take India’s current crude import price of USD 114.25 a barrel or INR 10,822 (USD 1 = INR 94.72) and since every barrel has 159 liters it comes to INR 68.06 as the price of crude per liter.
The refining cost comes to around INR 5 per liter which makes it INR 73.06 per liter.
According to News18 of India processing crude oil also increases volume. While one barrel contains 159 litres of crude, refining yields approximately 170 litres of petroleum products. Of this, petrol accounts for the largest share at about 72-78 litres, while diesel contributes around 38-46 litres. Other outputs include 15-19 litres of aviation turbine fuel, 8-10 litres of LPG, and 20-30 litres of by-products such as petcoke, naphtha and lubricants.
We can ignore the additional 11 liters keeping in mind the higher refining or value addition cost for diesel and keep it at 159 liters.
Transportation to and inside India can add another INR 3 per liter taking it to INR 76.06 and we can add another generous INR 3 per liter for transportation to Bhutan taking it to INR 79.06 and OMCs in India normally retain INR 8 to 11 per liter margin and so taking INR 11 as the margin the total cost of diesel to Bhutan should be around INR 89.06 as opposed to the INR 121.61 being charged now.
Even if we take the higher Gulf Arab for refined diesel benchmark used for Bhutan and Nepal at USD 188.74 per barrel or INR 17,877 per barrel it comes to Nu 112.43 per liter and not INR 121.61 charged now.
The real unsubsidized cost of diesel in India with domestic taxes included is INR 122.54 per liter at Delhi at a Shell petrol pump outlet, which is a private company unlike the state-owned OMCs. The domestic Value Added Tax would be 21 percent or around Nu 20 approximately, with Nu 5 approx. dealer margin meaning the actual diesel could be costing Nu 97 approx. before taxes and dealer margin.
By comparison, the IOCL as a government owned outlet is charging around Nu 94.77 per liter for diesel in Delhi after VAT and dealer commission. The actual loss incurred by the IOCL in India is therefore, Shell’s INR 122.54 – IOCL’s INR 94.77 which is INR 27.77.
In fact, Kotak Institutional Equities in India said that the state-owned OMCs need to hike diesel rates by around INR 28 to recover any losses within India and also retain a margin.
The Indian Joint Secretary for Ministry of Petroleum recently said the under-recovery for diesel in India is around INR 100 per liter. Many Indian media agencies have interpreted this as a loss to the OMCs. However, a closer look shows this does not mean an actual loss which is around INR 27.77 per liter but the additional INR 100 per liter the OMCs could have earned by exporting the same to foreign countries.
The bottom line is that even after adding all the margins and domestic Indian taxes (which Bhutan and Nepal are exempt from) the price of diesel in India at the pump is cheaper than both Bhutan and Nepal.
Current benchmarks not fair or transparent
The above does not mean that the Indian OMCs are ‘cheating’ Bhutan and Nepal, but it is clear that the current arrangement and benchmarks are leading to very high prices for both countries, and will make a major dent in the finances of both nations if the high prices continue for months.
The refusal to share the breakups with both Bhutan and Nepal despite official and even written requests shows intransparency and possible overcharging.
The high Gulf Arab and Singapore benchmarks of refined fuel used for Bhutan and Nepal does not make sense at one level since India is one of the world’s largest refiners and exporters of petrol and diesel.
The two benchmarks more than actual market rates, costs and realities in India reflect speculation based international shortages more apt for richer European countries than two developing country neighbors of India with fragile economies.
The GoI on 27th March 2026 announced an additional export tax of INR 21.5 per liter for diesel and INR 29.5 per liter for aviation jet fuel. Both Bhutan and Nepal are exempt from this, however, given the huge spike in prices since then there is suspicion in some circles in Thimphu and Kathmandu on if the OMCs silently added these into their costs for the two countries.
Bhutan and Nepal price parity history
Intransparency by the Indian OMCs cannot be ruled out.
From April 2022 to June 2023, this paper had carried out a series of investigative stories exposing how Bhutan was being overcharged for fuel by Indian OMCs, especially compared to Nepal, which was getting the same fuel from the OMCs at the time for a much lesser cost.
In April 2022, Nepal was being sold cheaper diesel by the OMCs at a price of INR 12.23 per liter lower than Bhutan.
Similarly, petrol was cheaper by INR 11.48 per liter lower than Bhutan at the time. This had been going on for decades.
The stories of The Bhutanese resulted in the former government, and especially the then Minister for Economic Affairs, Lyonpo Loknath Sharma, taking up the matter with his Indian counterpart and the Petroleum Minister in India, Hardeep Singh Puri.
As a result, OMCs started selling diesel and petrol at the same price to Bhutan as Nepal from April 2023, which resulted in a substantial drop in prices for Bhutan since then and ensured parity with Nepal.
With Nepal planning to discuss with their counterparts on the price of fuel it may be time for Bhutanese officials to also contemplate the same in a more detailed manner.
