Rs 1,700 crore a day: The rising cost of protecting India from global oil shock

State-owned oil marketing companies (OMCs) are incurring losses of around Rs 1,600 crore to Rs 1,700 crore every day to shield Indian consumers from rising global fuel prices triggered by the ongoing conflict in West Asia.

In the 10 weeks since the war began in the Middle East, the combined under-recovery on petrol, diesel and cooking gas LPG has crossed Rs 1 lakh crore, according to two sources with direct knowledge of the matter.

Despite a sharp rise in global crude oil prices, Indian consumers continue to pay petrol and diesel prices that have remained unchanged for nearly two years.

Petrol is currently priced at Rs 94.77 per litre, while diesel costs Rs 87.67 per litre.

Domestic LPG cylinder prices were increased by Rs 60 in March, but are still significantly lower than actual costs.

The three state-run OMCs — Indian Oil Corporation, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd — have continued fuel supplies without disruption even as international energy markets witnessed sharp volatility and price increases.

According to sources, the companies are now facing record-high under-recoveries, which represent the gap between the actual cost of fuel and its retail selling price.

The revenues earned from selling petrol, diesel and LPG are used by OMCs to purchase crude oil, expand refining infrastructure and maintain fuel distribution networks across the country.

Sources said the companies have so far managed to absorb the rising costs and maintain stable domestic fuel supplies, but the financial impact is now becoming increasingly visible. The OMCs may have to increase borrowings to meet working capital requirements, including crude oil purchases.

“If elevated crude prices persist for an extended period, OMCs may require higher working capital borrowings and calibrated reprioritisation of some capex timelines,” a source said.

“However, strategic investments in refining expansion, energy security infrastructure, ethanol blending, biofuels, and transition fuels continue to remain national priorities and are expected to proceed with Government support.”

Another source said the companies are operating under significant financial pressure.

“Financially strong OMCs are critical for India’s energy security, supply continuity, infrastructure expansion, and economic stability. Sustained stress on OMC balance sheets could affect future investments in refining, pipelines, strategic reserves, clean fuels, and energy transition initiatives.”

A separate source said any increase in petrol and diesel prices would now require a political decision from the government.

“There is no doubt that a fuel price hike has become inevitable, but the timing and quantum of increase have to be decided by the government.”

While several countries, including Japan and the United Kingdom, have raised petrol and diesel prices by up to 30 per cent since the start of the West Asia conflict, fuel prices in India have remained unchanged.

The ongoing conflict has disrupted India’s imports of around 40 per cent of crude oil, 90 per cent of cooking gas LPG and 65 per cent of natural gas, which is used for electricity generation, fertiliser production, CNG and piped cooking gas supply.

Sources said the OMCs have worked continuously to maintain supplies even during periods of panic buying and increased demand.

The government has also attempted to reduce the burden on consumers by cutting excise duties on fuel. The special additional excise duty on petrol was reduced to Rs 3 per litre from Rs 13 per litre, while excise duty on diesel was cut to zero from Rs 10 per litre.

According to sources, the reduction in excise duty has resulted in a revenue impact of around Rs 14,000 crore per month for the government.

(With inputs from PTI)