Renewed tensions in West Asia have pushed crude prices to new heights, forcing India’s public sector fuel retailers into significant financial strain amid unchanged retail prices and mounting under-recoveries, particularly on LPG cylinders.
India’s state-run fuel retailers are under renewed strain as a surge in crude prices driven by tensions in West Asia has pushed petrol, diesel and cooking gas sales deep into loss-making territory. According to calculations by the ratings agency ICRA, Indian Oil, Bharat Petroleum and Hindustan Petroleum are now losing about Rs 9 a litre on diesel, Rs 8 a litre on petrol and roughly Rs 300 on each domestic liquefied petroleum gas, or LPG, cylinder, adding up to a daily hit of about Rs 530 crore.
The pressure comes at a time when retail pump prices have been left unchanged even as international oil markets have tightened. The Indian crude basket climbed to $117.4 a barrel on September 21, far above the average of about $66 in 2025-26, after renewed US-Iran tensions, the shutdown of Saudi Arabia’s East-West pipeline and threats to shipping near the Bab el-Mandeb and the Red Sea. The companies have already reported significant financial strain: together, they posted a net loss of more than Rs 18,000 crore in the April-June quarter.
ICRA said the damage could widen further if crude stays elevated. If Brent averages between $105 and $115 a barrel for the rest of the financial year and retail fuel prices remain frozen, the three firms could face under-recoveries of about Rs 64,000 crore on petrol and diesel alone. At a higher range of $130 to $140 a barrel, the shortfall could rise to roughly Rs 1.9 lakh crore. ICRA senior vice-president and co-group head of corporate sector ratings Prashant Vasisht said higher crude and unchanged domestic prices would weigh on profitability, cash flow and working capital, potentially forcing the companies to borrow more in the short term.
The refined fuel side of the business is offering only partial relief. ICRA said gross refining margins, or GRMs, have stayed above $10 a barrel in Singapore since the conflict escalated, helped by refinery outages, product supply disruptions and lower inventories in West Asia, as well as additional tightening from damage to Russian refineries. But those gains do not fully offset the losses from retail sales, because the public sector retailers buy in products from other refiners as well and sell far more fuel through their retail networks than they produce themselves.
LPG remains the most acute pain point. ICRA said the cumulative negative buffer on domestic LPG widened to Rs 61,940 crore by June 30, and losses per cylinder were about Rs 500 in the June quarter before easing to around Rs 300 in September. If oil prices average between $105 and $115 a barrel, the annualised under-recovery on domestic LPG could reach Rs 1.03 lakh crore without a price increase, and still remain around Rs 87,000 crore even with a Rs 90-a-cylinder increase. The government typically does not compensate retailers for petrol and diesel losses, since those fuels are formally deregulated, but it has stepped in in recent years to help cover LPG under-recoveries through special support.
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