A sharp surge in global crude oil prices following Israeli strikes on Iranian nuclear facilities has put Indian oil refiners under significant pressure, as companies face volatile input costs without a corresponding increase in domestic retail fuel prices.

On June 13, 2025, crude prices spiked by as much as 12 percent intraday, with Brent futures hitting over $77 per barrel, while WTI crude neared $71 per barrel, before cooling off marginally by afternoon trade.

This sudden escalation has hit the margins of Indian oil marketing companies (OMCs) such as Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL). All three saw their shares dip 1–2 percent on the NSE, retreating from early-day lows by mid-session.

Business Impact on Indian OMCs

Indian refiners have maintained stable retail fuel prices over recent months despite fluctuations in global crude benchmarks, offering consumers relief but exposing themselves to squeezed margins.

Marketing margins—or the difference between the price of refined products and the cost of raw crude—are vulnerable to such volatility.

According to Harshraj Aggarwal, Lead Analyst at Yes Securities, every $2 per barrel rise in Brent leads to a Re 1 per litre dip in OMC margins for petrol and diesel.

With Brent moving from the $65–70 per barrel range into higher territory, analysts warn of deteriorating profitability unless prices cool off soon.

Indian OMCs generally do not disclose detailed margin or insurance cost data, but industry insiders say recent developments could significantly raise their cost structures if the crisis persists.

Upstream Companies See Gains

In contrast to OMCs, Indian upstream energy firms such as Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) benefited from the spike in crude prices.

Both stocks rose between 1.3 and 1.5 percent on June 13, as markets factored in potential gains from improved price realisation.

These firms produce crude oil domestically, and higher international prices directly increase their revenues.

Dependence on Middle East Crude

India, as one of the world’s largest crude oil importers, is 90 percent reliant on imported oil.

Most of its crude comes from Russia, Iraq, Saudi Arabia, UAE, and the US, but Middle Eastern nations still account for a major share.

According to Kpler, a global trade analytics firm, India sourced over 40 percent of its May 2025 oil imports from Saudi Arabia, Iraq, UAE, and Kuwait.

This reliance places Indian OMCs in a vulnerable position, especially if tensions disrupt supply chains or raise transportation costs.

Strait of Hormuz in Focus Again

A significant risk is the threat to the Strait of Hormuz, a narrow maritime choke point through which about 20 million barrels per day—a fifth of global oil consumption—passes.

The Strait connects the Persian Gulf with the Arabian Sea and is a critical route for OPEC members like Saudi Arabia, Iraq, and Kuwait to export crude to Asian markets, including India.

Iran, which borders the northern side of the Strait, has previously threatened to block the channel if attacked—a threat that resurfaced after Israeli airstrikes on June 13.

If Iran follows through on this warning, the implications for global oil supply chains could be severe.

Indian refiners may face higher shipping, insurance, and freight costs, significantly increasing the landed cost of crude oil.

Expert View on Possible Escalation

Madhavi Arora, Lead Economist at Emkay, noted,

“Iran is on the northern side of the Strait of Hormuz through which 20mbpd+ of oil flows. A wider Middle East conflict could hit supply from Saudi, Iraq, and UAE, spiking oil prices sharply.”

This geo-economic tension comes at a time when India has already been grappling with longer shipping routes, particularly after the Red Sea became unsafe due to Houthi attacks, pushing some Russian shipments to reroute via the Cape of Good Hope, adding time and cost.

India’s Energy Equation with Iran

Before US sanctions were reimposed by Donald Trump's administration, Iran was India's third-largest oil supplier.

In 2018–19, India imported large volumes of Iranian crude, which matched well with the refining profiles of Indian refineries such as those operated by IOC, BPCL, and HPCL.

However, after the US 'maximum pressure' campaign, Indian refiners curbed all imports from Iran, following New Delhi's stance of not buying crude from sanctioned countries.

Oil Minister Hardeep Singh Puri recently reiterated this position, confirming that India will not buy oil from Iran or Venezuela until sanctions are lifted.

Still, Indian officials have hinted at resuming Iranian imports if global circumstances change. Given the current crisis and the ongoing quest for supply diversification, India might reconsider Iranian crude if sanctions ease.

What Lies Ahead for OMCs

If crude prices remain high and the Hormuz route becomes risky, Indian OMCs face a double squeeze—lower margins and higher procurement costs.

While upstream players stand to gain, the net effect on India’s energy balance sheet could be negative, given the country’s massive dependence on imported crude.

Moreover, with fuel prices unlikely to be raised in the short term due to political and inflation concerns, refiners may have to absorb losses or lower margins, affecting profitability and investor sentiment.

Market watchers also anticipate potential government intervention—such as subsidies or pricing support mechanisms—if crude remains elevated.

Conclusion

The ongoing Israel-Iran conflict has injected severe volatility into the global oil market, and India’s highly import-reliant refining sector is already feeling the strain.

While the situation remains fluid, any escalation—military or economic—near the Strait of Hormuz could upend oil supply routes, inflate energy prices, and complicate India’s fuel economics.

For now, the industry is in wait-and-watch mode, hoping for a cooling of tensions and stability in global crude prices before deeper damage sets in.

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