India’s state-owned oil marketing companies (OMCs) are facing estimated under-recoveries of nearly Rs 30,000 crore every month due to the ongoing crisis in West Asia, which has disrupted vessel movement through the Strait of Hormuz.
According to Sujata Sharma, Joint Secretary in the Petroleum Ministry, oil companies such as Indian Oil, Bharat Petroleum and Hindustan Petroleum are continuing to incur heavy losses on the sale of petrol, diesel and LPG. This is despite the government cutting excise duty by Rs 10 per litre on petrol and diesel in late March to cushion the impact of high international crude prices on OMCs. The excise duty reduction has resulted in the government foregoing revenue of nearly Rs 14,000 crore per month.
The under-recovery estimates also exclude losses on Aviation Turbine Fuel (ATF), prices of which have surged significantly since the conflict involving Iran, Israel and the US escalated. The government has put a cap 25% on the monthly increase of ATF prices by OMCs.
“Our oil marketing companies are also facing losses, but the government has tried to ensure that there is no increase in consumer prices, and therefore excise duty has also been reduced. The reduction in excise duty has an impact of nearly Rs 14,000 crore per month,” said Sujata Sharma.
India, which imports nearly 88% of its crude oil requirement, remains heavily dependent on the Strait of Hormuz for energy supplies. Before the conflict, around 90% of India’s LPG imports from West Asia and nearly 50% of its natural gas imports were sourced through this region.
The disruption in cargo movement has reduced the supply of crude oil, LNG and LPG to India, leading to a sharp increase in international energy prices. According to Sharma, crude oil prices, which were around $70 per barrel two months ago, have now risen to nearly $120 per barrel. Similarly, LPG prices, based on the Saudi Contract Price (CP) benchmark, have climbed to around $780 per tonne.
Retail fuel prices in India, however, have remained unchanged since February 28 despite the steep rise in global crude prices. Daily under-recoveries during April were estimated at around Rs 18 per litre on petrol and Rs 25 per litre on diesel, translating into average losses of Rs 600-700 crore per day for OMCs. However, it has increased the domestic LPG prices by Rs 60 and that of commercial LPG by over Rs 1,000 per cylinder.
Additional costs such as emergency crude sourcing, higher freight charges due to longer shipping routes, and elevated insurance premiums have further increased the financial burden on oil companies.
Meanwhile, on the western side of the Strait of Hormuz, 13 Indian-flagged vessels remain stranded. These include one LPG tanker, five crude oil tankers, one product or chemical tanker, three container ships, two bulk carriers and one dredger.