Rising Costs Challenge Indian Oil Firms Amid Global Energy Crisis

Indian oil firms are grappling with unprecedented financial challenges as they absorb rising costs to protect consumers from the global energy crisis. With daily losses reaching Rs 1,700 crore, the situation raises concerns about the sustainability of their operations. Despite maintaining fuel prices at two-year-old levels, the ongoing conflict in the Middle East has disrupted crude oil imports significantly. As the government weighs the political implications of potential price hikes, the future of India's energy security hangs in the balance. This article delves into the financial pressures faced by state-owned oil companies and the implications for consumers and the economy.

By Narendra Chaudhary May 10, 2026, 15:08 IST

Financial Strain on State-Owned Oil Companies

State-owned oil companies in India are currently facing a staggering financial burden, estimated at around Rs 1,600 to 1,700 crore daily, which totals over Rs 1 lakh crore in just ten weeks. This situation arises as these firms strive to shield Indian consumers from the impacts of the global energy crisis. Since the onset of the conflict in the Middle East, these companies have maintained steady supplies of petrol, diesel, and cooking gas (LPG) at prices significantly lower than their actual costs, unlike many international markets that have resorted to rationing or steep price hikes.

According to sources familiar with the situation, the three major oil marketing companies (OMCs)—Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL)—are experiencing unprecedented under-recoveries, which is the gap between their costs and the retail prices. The combined daily under-recovery for petrol, diesel, and LPG has reached Rs 1,600 to Rs 1,700 crore, leading to a total exceeding Rs 1 lakh crore over the past ten weeks.

Despite a 50% increase in crude oil prices, petrol and diesel remain priced at Rs 94.77 and Rs 87.67 per litre, respectively, rates that have not changed in two years. Although domestic LPG prices saw a rise of Rs 60 per cylinder in March, they still fall short of reflecting the actual costs.

The revenue generated from fuel sales is crucial for OMCs, as it funds their crude oil purchases, infrastructure development, and distribution networks. While these companies have successfully insulated the Indian market for the past ten weeks, the financial toll is becoming apparent. Sources indicate that they may need to increase borrowing to cover working capital requirements for crude oil purchases.

Should high crude prices persist, OMCs might face the necessity of higher borrowings and a reassessment of capital expenditure timelines. Nevertheless, investments in refining, energy security, ethanol blending, biofuels, and transition fuels remain national priorities, supported by the government.

Another source highlighted the significant financial pressure on OMCs, emphasizing that their financial health is vital for India's energy security and economic stability. Prolonged stress on their balance sheets could hinder future investments in refining, pipelines, strategic reserves, clean fuels, and energy transition projects.

Raising fuel prices has become a political decision that the government must address. While a price hike seems unavoidable, the timing and extent of the increase will be determined by the government. In contrast to countries like Japan and the UK, which have raised fuel prices by up to 30% since the conflict began, India has maintained its prices at two-year-old levels, despite the war affecting 40% of its crude oil imports, 90% of LPG, and 65% of natural gas.

Even as the three OMCs have worked diligently to keep supply lines intact amid rising demand, government interventions, including reductions in excise duties, have helped mitigate some of the fuel cost burdens. The excise duty on petrol was slashed from Rs 13 to Rs 3 per litre, while diesel excise duty was eliminated entirely. This reduction has resulted in a monthly revenue loss of Rs 14,000 crore for the government.