Indian Oil Refiners Grapple with 93% Crude Price Surge Amid Gulf Conflict
The cost of crude oil for Indian refiners has experienced a dramatic surge of 93% since the outbreak of conflict in the Gulf region on February 28. Official data reveals that prices soared to $136.56 per barrel on Friday, significantly eroding profit margins for major domestic players including IndianOil, HPCL, BPCL, and Reliance Industries.
Price Volatility and Global Comparisons
Since the conflict began, benchmark Brent crude has witnessed an increase exceeding 40%, while Russian Urals crude has risen by more than 50%. The Indian basket—comprising sour crude from Oman and Dubai alongside sweet Brent Dated—was estimated at $70.9 per barrel on February 26. This figure climbed to $127.2 by March 12 before experiencing a sharp $9.3 per barrel increase (7.3%) to reach $136.5 on Friday.
In contrast to several countries like the United States, where retail gasoline prices have risen in alignment with crude increases to approximately $3.7 per gallon according to AAA data, Indian oil companies have maintained unchanged pump prices. This decision has resulted in substantial margin compression after months of profitability.
Geopolitical Factors and Supply Disruptions
The price spike is primarily attributed to global scarcity caused by Iran blocking the Strait of Hormuz, a critical maritime channel responsible for 20% of global oil and gas supply. For India, the impact is particularly severe as this narrow passage supplies approximately 60% of the energy processed within the country.
India had previously benefited from purchasing discounted Russian crude, but those prices have now increased significantly. Crude prices are expected to remain volatile until vessel movement through the Hormuz Strait normalizes. Brent crude reached a three-year high of $120 per barrel on March 9 before moderating slightly after International Energy Agency members decided to release 400 million barrels from emergency reserves to address soaring prices.
Economic Implications and Expert Analysis
Axis Bank chief economist Neelkanth Mishra, who serves on the Economic Advisory Council to the Prime Minister, warned that if crude remains around $100 per barrel for a year, India's import bill would rise sharply. This increase could hurt the trade balance by approximately $80 billion, equivalent to 2.1% of GDP.
In a recent report, ratings agency ICRA highlighted that prolonged conflict risks disruption of energy supplies and shipping routes, potentially impacting India's macroeconomic outlook across multiple sectors. The agency noted that a $10 increase in the average annual crude oil price (relative to baseline estimates) would raise the country's current account deficit by 30-40 basis points.
Harvard University economics professor Gita Gopinath emphasized that higher crude prices will affect global economic growth. "If we are now looking at an average of $85 per barrel for 2026, then that could shave off around 0.3-0.4 percentage points from global growth. Headline inflation could rise by 60 basis points," she stated in a social media post on Sunday.
Political and Fiscal Considerations
The Indian government, which has been generating substantial revenue from the sector, is unlikely to implement any pricing changes until March 31 to ensure that taxes and fiscal balance align with budget targets. With elections scheduled in four states and the Union Territory of Puducherry, political approval for adjustments appears improbable until the final phase of voting concludes on April 29.
This situation presents a complex challenge for India's energy sector, balancing economic pressures with political realities while navigating unprecedented global market volatility.
