Oil Companies Lose ₹530 Crore Daily as Crude Basket Hits $117.4 With Pump Prices Frozen

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New Delhi. The three public sector oil marketing companies (OMCs), Indian Oil, Bharat Petroleum and Hindustan Petroleum, are losing about ₹530 crore a day on fuel sales because retail prices have not been raised, according to ratings agency ICRA’s calculations reported by The Indian Express. They lose ₹9 a litre on diesel, ₹8 on petrol and ₹300 a cylinder on domestic LPG. If crude stays above $105 a barrel through the second half of 2026-27 without a price rise, ICRA says under-recoveries on petrol and diesel could exceed ₹64,000 crore for the year, and on LPG could top ₹1 lakh crore. An under-recovery is the gap between what it costs a company to supply a product and the lower price it is allowed to charge. The Indian crude basket, the average price of crude India buys, rose to $117.4 a barrel on September 21 from about $66 on average in 2025-26, driven by renewed U.S.–Iran conflict, the shutdown of Saudi Arabia’s East-West pipeline and the Houthi threat around the Bab el-Mandeb and the Red Sea. High gross refining margins (GRMs), the profit on turning crude into fuels, are only a partial cushion because the OMCs sell more fuel than they refine and buy the rest from other refiners, including standalone ones with little retail network. The three run about 90% of India’s petrol and diesel outlets and are the only household LPG suppliers. India, the world’s third-largest crude consumer, imports over 88% of its needs. The Hindu reported that Brent futures rose to $104.86, up more than 5% since September 22, and that the Sensex and Nifty each fell 1.7% on Thursday. Petroleum Minister Hardeep Singh Puri said the West Asia crisis “is not over” and could get “more serious”, cited about 102 million barrels a day of available crude against demand he put at 94-95 million, and ruled out export curbs. Separately, after meeting External Affairs Minister S. Jaishankar at the UN General Assembly, U.S. Secretary of State Marco Rubio said the U.S. was “well-positioned to help regional partners address their energy security challenges”. The Indian Express notes the U.S. is already India’s largest LNG supplier, Russia supplies nearly half of India’s crude imports, and the new Lindsey O. Graham Sanctioning Russia and Iran Act allows tariffs of up to 100% on buyers of Russian energy. The syllabus link is GS3 on energy pricing, subsidies and inflation.

Static syllabus linkage

1. Fuel prices are deregulated in law but managed in practice. The government freed petrol prices from administered control in June 2010 and diesel prices in October 2014, allowing OMCs to set prices according to international benchmarks. From June 16, 2017, prices began to change every day under dynamic pricing. Domestic LPG and kerosene through the public distribution system remain subsidised or administered. Because the three public sector OMCs dominate retail, their decision not to change prices, often made with the government’s approval, works in effect as regulation. Today’s losses therefore come from a policy choice to shield consumers, not from a market failure. Household LPG subsidy now reaches consumers through the PAHAL direct benefit transfer, under which cylinders are sold at market price and any subsidy is credited to bank accounts, while the Pradhan Mantri Ujjwala Yojana (2016) gave connections to women in poor households.
2. Taxes explain much of the pump price. Petrol and diesel remain outside the Goods and Services Tax. The Union levies excise duty on them, and States levy value-added tax or sales tax under their own power. Article 279A(5), inserted by the 101st Constitutional Amendment in 2016, provides that the GST Council shall recommend the date from which GST will apply to petroleum crude, high speed diesel, motor spirit (petrol), natural gas and aviation turbine fuel. Because both Union and State taxes form a large share of the retail price, the government has a lever: it can cut excise duty to absorb part of a crude price increase instead of passing it to consumers or the OMCs.
3. Oil bonds are the historical warning. In the years before deregulation, when OMCs could not raise prices, the government compensated them partly by issuing special oil bonds instead of paying cash. This kept the cost out of that year’s fiscal deficit but left the interest and repayment to later budgets for more than a decade. The episode is now cited in debates as an example of hidden, deferred fiscal liabilities. Any compensation for today’s losses will be judged against that experience.
4. India’s strategic petroleum reserve is small by international standards. Indian Strategic Petroleum Reserves Ltd (ISPRL), a special purpose vehicle under the Oil Industry Development Board and the Ministry of Petroleum and Natural Gas, has built underground rock caverns at Visakhapatnam, Mangaluru and Padur with a combined capacity of 5.33 million tonnes. This covers only about nine to ten days of India’s crude requirement. Member countries of the International Energy Agency must hold stocks equal to 90 days of net imports; India is an IEA association country, not a full member. Chief Economic Adviser V. Anantha Nageswaran said this week that India should maintain at least six months of oil storage.

Why UPSC loves this

1. GS3 has asked about subsidies and price-setting in energy. Mains questions have covered the rationale for fuel price deregulation, the fiscal burden of subsidies and energy security in the face of oil shocks. A 2026 answer can quantify the burden using ICRA’s ₹64,000 crore auto-fuel and ₹1 lakh crore LPG estimates and connect it to the West Asia crisis.
2. Prelims tests the institutions and legal framework. UPSC has asked about the strategic petroleum reserve sites, the IEA, the GST status of petroleum products and the Ujjwala scheme. Article 279A(5) and the list of five petroleum products it names are strong candidates for a statement-based question.
3. The link between oil, inflation and monetary policy recurs. Earlier cards this month have covered rising inflation and the chance of an RBI rate hike. Holding pump prices steady limits headline inflation in the short term but moves the pressure to OMC balance sheets and possibly the budget. Questions on cost-push inflation and the trade-off between fiscal and monetary policy can use this example.

Analysis

1. Freezing prices is a hidden subsidy paid by public shareholders and, later, the budget. No official subsidy is being paid, yet the OMCs are losing about ₹530 crore a day. That money is effectively a consumer subsidy financed from the balance sheets of listed public sector companies. If the losses continue, the government will either have to compensate the OMCs, as it has done before with cash or oil bonds, or accept lower dividends and weaker investment capacity. Either way the cost lands on the public exchequer; it simply appears later and less visibly. Transparent budgeting would record it as a subsidy now.
2. The refining cushion depends on which company you are. High GRMs help integrated companies, but the paper notes that the OMCs sell more fuel than they refine and buy the rest from standalone refiners. That means part of the windfall from high margins goes to refiners without retail networks, while the retail losses stay with the three public sector companies. Private refiners with little domestic retail exposure are the clearest winners. This mismatch is why arguments that ‘integrated margins cover the loss’ should be treated with caution.
3. Excise duty is the fairest lever, but not a free one. Cutting the Union’s excise duty would reduce the gap between cost and pump price without making the OMCs pay. It would also be transparent, since the cost appears in the budget and Parliament can see it. But excise cuts reduce revenue at a time when higher crude also raises the import bill and puts pressure on the rupee. A balanced approach would combine a partial excise cut, a limited price increase and targeted LPG support for Ujjwala households, rather than a universal freeze whose largest benefit goes to people who consume the most fuel.
4. The storage gap is now clearly a strategic weakness. India imports over 88% of its crude, and the reserve built so far covers only about ten days of need. The Chief Economic Adviser’s call for six months of oil storage shows how far official thinking has moved. Large reserves are expensive to build and fill, and filling them at $117 is poor timing. The time to build and fill is when prices are low, as in 2025-26 when the basket averaged about $66. This crisis will be wasted if storage is not expanded once prices ease.
5. Rubio’s offer turns energy security into trade diplomacy. The U.S. is already India’s largest LNG supplier and now presents itself as a solution to India’s energy crisis. At the same time it holds a law allowing tariffs of up to 100% on buyers of Russian energy, and Russia supplies nearly half of India’s crude. The offer and the threat work together to shift India’s sourcing. Buying more U.S. energy can help diversify supply and support a trade deal. But freight costs, refinery configurations and price all matter, and India will almost certainly seek a waiver rather than cut Russian oil sharply during a supply crisis.

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