India's state-run OMCs face hightened margin, cash-flow risks from oil price surge: Moody’s

India’s state-owned oil marketing companies (OMCs) could face heightened margin pressure and cash-flow volatility as global energy prices rise while domestic fuel prices remain largely unchanged, according to a report by Moody's Ratings.

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The country’s three largest fuel retailers — Indian Oil Corporation, Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) — are likely to continue absorbing higher input costs stemming from elevated global crude and gas prices, the agency said.


Domestic retail prices of petrol and diesel have remained largely steady since April 2022 despite fluctuations in global energy prices, reflecting government involvement in fuel pricing. The three state-run OMCs operate close to 90% of India’s fuel retail outlets, reinforcing the government’s ability to influence pricing and limit immediate pass-through of higher costs to consumers.

Limited price pass-through to strain earnings

India’s heavy dependence on imported energy makes OMCs particularly vulnerable to volatility in global oil markets.

The country imported 88% of its crude oil requirements and about 51% of natural gas in the fiscal year ended March 2025, directly exposing the cost base of domestic refiners and fuel retailers to global price movements.

When international oil prices rise, procurement and refining costs increase sharply while retail prices for petrol and diesel remain unchanged, compressing marketing margins and weakening operating cash flows.

Moody’s noted that a similar situation unfolded after the Russia-Ukraine War, when the OMCs incurred significant losses in FY23 due to the sale of petrol and diesel below cost. These losses were later partly offset when crude prices softened, allowing companies to recover margins while retail prices stayed unchanged.The recent rise in energy prices could again weigh on earnings in the near term, although profitability may recover if crude prices stabilise later, the report said.

Supply diversification offers some buffer; India stands out

Despite its reliance on imports, India has taken steps to mitigate supply risks amid geopolitical tensions affecting the Middle East.

“India stands out among the large Asian economies that rely on crude from the Middle East. The country holds crude reserves covering about 74 days of net oil imports,” the report said.

Also Read: India ensures household gas supply amid global energy crisis

To ease supply constraints following disruptions around the Strait of Hormuz, the United States has also granted a 30-day waiver allowing India to purchase Russian oil stranded at sea, expanding supply options for domestic refiners.

At the same time, disruptions in the Middle East have affected liquefied petroleum gas (LPG) supplies, a key fuel for Indian households.

The government has directed refiners to maximise LPG production to ensure adequate domestic supply. Reflecting higher international prices, the retail price of LPG was increased by ₹60 per 14.2-kg cylinder on March 7.

Moody’s expects losses from selling LPG below market prices to accumulate for OMCs, though these could be offset through government compensation.

In August 2025, the government approved ₹300 billion in compensation for the three OMCs to cover earlier LPG losses, to be paid in 12 equal monthly instalments starting November 2025. The companies had incurred losses of nearly ₹400 billion in FY25, the report noted.