Petrol and diesel margins have plunged to ₹-14/litre and ₹-18/litre, while fertiliser subsidy is set to surge to ₹2.05–2.25 trillion, as crude prices remain elevated at $120-125 per barrel amid the West Asia crisis, triggering a broad-based stress cycle across India’s downstream sectors, Icra said.
The sharp deterioration across key indicators reflects mounting pressure on oil marketing companies (OMCs), which continue to absorb rising input costs even as retail fuel prices remain largely unchanged.
Hormuz Disruptions
The supply shock has been driven by disruptions in the Strait of Hormuz, through which nearly 25% of global oil trade (around 20 million barrels per day) and 20% of global LNG flows pass, tightening supplies and pushing up prices across global energy markets.
“The stable pump prices for auto fuels amid elevated crude oil prices is impacting the profitability of the OMCs despite the recent reduction in excise duty,” said Prashant Vasisht, senior vice president and co-group head at Icra, adding that margins are expected to remain under pressure at current crude levels.
The impact is already visible in fuel retailing, where negative marketing margins are eroding earnings despite relatively healthy refining margins. With crude remaining elevated, losses on petrol and diesel sales are expected to persist.
Cascading Costs
The cost escalation is cascading into fertilisers, one of the most subsidy-intensive sectors. Gas pool prices have risen to around $19/mmbtu in April 2026, compared to $13/mmbtu before the crisis, sharply increasing production costs.
As a result, fertiliser subsidy requirements are projected to rise to ₹2.05–2.25 trillion in FY27, well above the budgeted ₹1.71 trillion, adding to fiscal pressures.
The LPG segment is emerging as the most vulnerable link. With supplies from West Asia disrupted and international prices rising, under-recoveries on domestic LPG sales are estimated to surge to ₹80,000 crore in FY27, nearly doubling from recent levels.
Although refiners have ramped up domestic production and diversified sourcing from markets such as the US and Australia, these measures have only partly offset supply disruptions, leaving OMCs exposed to sustained losses.
The chemicals and petrochemicals sectors are also witnessing rising input costs due to higher feedstock prices and disrupted trade flows. While demand has been supported in the near term by stockpiling, Icra expects a moderation once supply conditions stabilise.
City gas distribution (CGD) companies are facing margin pressure as well. While domestic PNG demand remains stable due to preferential gas allocation, the CNG segment is expected to remain under strain as rising LNG prices and currency depreciation may not be fully passed on to consumers.
Icra said elevated energy prices are likely to weigh on profitability across downstream sectors in FY27. While refining margins are expected to remain stable, fuel retailing, fertilisers, petrochemicals and basic chemicals are projected to maintain a negative outlook due to sustained cost pressures.