India’s crude oil import costs have surged sharply, intensifying pressure on the economy and particularly on state-run fuel retailers, even as retail prices remain unchanged for now.
Crude Spike Intensifies Cost Pressures
The average price of
India’s crude oil basket — the rate at which domestic refiners import oil — jumped to $146.09 per barrel on March 17, marking a steep 111.7% rise from February’s average of $69.01.
The surge has been rapid. Prices climbed from $70.90 on February 26 to $127.20 on March 12, then to $136.56 on March 13, and further to $142.69 on March 16, reflecting tightening global supply amid disruptions in West Asia.
While the spike raises broader concerns around inflation and input costs, the immediate impact is being felt by oil marketing companies (OMCs), which are absorbing the shock.
OMCs Face Mounting Margin Pressure
At current crude levels, analysts say the downstream oil sector has moved well beyond sustainable thresholds.
According to Elara Capital, crude prices above $110 per barrel significantly erode profitability. “OMCs’ diesel and petrol margins may fall by Rs 6.3 per litre, while LPG losses could rise by Rs 10.2 per kg, translating into an annual LPG under-recovery increase of Rs 32,800 crore,” the report noted.
While upstream firms stand to benefit from higher prices, and gross refining margins have improved due to supply disruptions, these gains are uneven across the value chain.
If elevated crude prices persist, OMCs — including IOC, BPCL and HPCL — may require either retail price hikes or fiscal support, as prolonged under-recoveries would strain their cash flows.
Industry estimates suggest that any fuel price revision is unlikely before March 31, as the government looks to preserve tax revenues and maintain fiscal discipline.
“Profitability of OMCs will be adversely impacted due to marketing losses on auto fuels unless pump prices are increased,” said Prashant Vasisht of ICRA.
Delayed Price Pass-Through Likely
Analysts expect a lag in passing on higher crude costs to consumers.
“Retail fuel prices are typically revised after sustained trends in crude prices, so increases may not be immediate,” Vasisht said.
Pankaj Srivastava of Rystad Energy echoed this view, indicating that price hikes may be deferred until after early May 2026. He added that taxes and cesses account for 40–45% of petrol prices and 35–40% of diesel prices, meaning any decision to absorb costs would also weigh on government revenues.
Vasisht noted that government intervention may again be necessary, as seen in previous cycles, to cushion OMC losses.
Macro Risks: Inflation, Rupee, and Import Bill
The oil price spike is already translating into a broader macroeconomic shock.
Srivastava warned that higher prices could disrupt refinery expansion plans, weaken the rupee, and reduce foreign exchange reserves. He also highlighted that refining margins could come under pressure if the government limits price pass-through to consumers.
The impact on India’s import bill is also significant. “Every $10 per barrel increase in crude prices raises the import bill by $14–16 billion annually,” Vasisht said.
Sourav Mitra of Grant Thornton Bharat estimates that at current levels, India’s energy import bill could rise by 25–30%, adding nearly $50 billion annually.
Outlook: Pressure Building Beneath Stable Fuel Prices
India remains highly vulnerable to global oil shocks, with over 80% of its crude needs met through imports, much of it routed via the Strait of Hormuz.
With the crude basket hovering near $146 per barrel, analysts believe the current strategy of holding retail fuel prices may continue until the end of the fiscal year. However, if prices remain elevated, the burden is likely to shift — from OMCs and government finances to consumers — in the months ahead.
