Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL), and Bharat Petroleum Corporation (BPCL) — the state-run (OMCs) — are likely to take a hit on auto fuel marketing margins if crude oil prices stay elevated in the near term.
The US-Israel attacks on Iran and the counterattacks by Tehran have , as investor concerns grew that the ongoing conflict could lead to supply disruptions. These concerns intensified after Iran vowed a full closure of the Strait of Hormuz, through which nearly 20% of global oil flows and over 40% of India’s crude imports transit.
Global benchmark Brent rose above $80 a barrel to reach the day’s high of $82.24 in today’s trade, after spiking about 7% on Monday, while West Texas Intermediate was near $75.5, extending its winning run to a fourth day.
Impact of high crude prices on OMCs
A rise in crude oil prices generally puts pressure on OMCs, as crude constitutes the bulk of their input costs. Higher crude prices increase the overall expense of refining and fuel production.
If petrol and diesel pump prices are not revised upward in proportion to the increase in crude, OMCs may face pressure on marketing margins, which could weigh on their earnings.
Devarsh Vakil, Head of Prime Research at HDFC Securities, said, “Oil marketing companies are expected to face a negative outlook as rising crude oil prices are likely to compress their marketing margins. Similarly, every 50 paise per litre change in fuel margins could lead to a 7–10% impact on EBITDA.”
However, he noted that domestic oil and gas exploration companies could see a positive impact on their earnings due to rising crude oil prices. As a rough estimate, a $5 per barrel rise in Brent crude would increase the earnings per share of ONGC and Oil India by 7% and 12%, respectively.
Sumit Pokharna, VP – Fundamental Research at Kotak Securities, pointed out that sustained higher crude prices present macroeconomic and sector-specific challenges. OMCs are particularly vulnerable, as elevated crude prices can compress refining margins, increase operating and working capital requirements, and lead to higher borrowing costs and debt levels.
If the situation persists, an upward revision in retail fuel prices remains a possibility, although any such adjustment may not be immediate, he added.
Domestic brokerage JM Financial expects HPCL to be the worst-hit given its highest leverage to the marketing business. It has a ‘reduce’ rating on all three OMC stocks.
Iran threatens full closure of Strait of Hormuz
An Iranian Revolutionary Guards senior official reportedly said on Monday that the and Iran will fire on any ship trying to pass, Reuters reported, citing Iranian media.
The chokepoint off the coast of Iran handles a fifth of the world’s oil and a similar portion of liquefied natural gas. Shipments transiting the waterway usually come from Iran, as well as other producers in the region, including Saudi Arabia, en route to global markets.
A , with some analysts seeing oil crossing $100 per barrel.
On Monday, Saudi Aramco halted operations at its Ras Tanura refinery after a drone strike in the area. at the world’s largest export facility after it was targeted in an Iranian attack.
India’s exposure to an energy shock
According to estimates by domestic brokerage firm JM Financial, every USD 1 increase in crude raises India’s annual import bill by approximately USD 2 billion. Prolonged tensions may increase logistics and marine insurance costs, disrupt Gulf shipping routes, and pressure the trade balance.
The brokerage also stated that the Indian rupee faces a near-term depreciation bias, with potential RBI intervention through foreign exchange reserves.
The transmission channel is clear: higher crude increases inflation risk; higher inflation pushes bond yields up; rising yields compress equity multiples.
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