Israel’s strikes on Iranian nuclear installations and the subsequent vow of retaliation by Tehran sent crude prices sharply higher on June 13, denting prospective marketing margins of Indian oil marketing companies (OMCs) - highly reliant on import from the Middle-East - further aggravated by the risk of disruption to the shipping channel of the Strait of Hormuz.
Crude prices soared by up to 12 percent on June 13, but later cooled off marginally, with WTI crude near $71 per barrel while Brent prices hitting a high of over $77 a barrel in futures market.
At 1:30 pm, shares of oil refiners including Indian Oil Corporation (IOCL), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) were down between 1-2 percent on NSE, off early lows.
Business Impact on Indian OMCs
Higher crude prices squeeze Indian oil refiners, as they have largely kept retail fuel prices unchanged in the domestic market despite volatility in the international market.
Elevated crude prices erode marketing margins - the profit on sale of refined products like petrol and diesel - of an oil marketing company. For every $2 per barrel increase in Brent prices, the OMCs’ margins fall by Re 1 per litre for petrol and diesel, said Harshraj Aggarwal, lead analyst at Yes Securities.
With crude prices in the range of $65-70 per barrel in recent months, Indian OMCs had been maintaining healthy marketing margins, but that could begin to fall if crude stays higher for longer, affecting their bottomline. The oil refiners do not disclose the profits they make on sale of petroleum products.
Meanwhile, shares of Indian upstream companies including Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) saw an uptick on June 13, in anticipation of improved price realisation. At 1:30 pm, shares of ONGC climbed 1.3 percent on NSE, while OIL rose 1.5 percent in a weak market.
India is one of the largest crude oil importers in the world and is reliant on imports for around 90 percent of its crude oil requirements. Currently, India sources crude oil primarily from Russia, Iraq, Saudi Arabia, UAE and the US.
Potential Impact on Shipping Route
Indian OMCs have faced the brunt of higher freight and insurance costs in the past amid war escalation between oil producing countries such as Russia and the Middle East nations.
Iran has repeatedly threatened to block the Strait of Hormuz - the crucial and narrow shipping lane through which a fifth of the world’s total oil consumption passes through - if Tehran is attacked by Western forces. The Strait of Hormuz, located between Oman and Iran, connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. It is also the route for around a quarter of the global liquefied natural gas (LNG) trade.
Tehran’s threat to shut down the shipping route came after the US President Trump launched a ‘maximum pressure’ campaign on Iran to drive its oil exports to zero, citing the failure to reach a nuclear deal despite many attempts.
The Strait of Hormuz is a vital shipping route through which Organisation of Petroleum Exporting Countries (OPEC) members - including Saudi Arabia, Iraq, Kuwait and several others - ship oil to Asia. Indian oil refiners buy a significant chunk of their crude supplies from these nations. According to global trade data analytics firm Kpler, India bought over 40 percent of crude oil from Saudi, Iraq, the UAE and Kuwait in May 2025.
Any disruption in the this shipping route would lead to higher freight and insurance costs for Indian OMCs, increasing the landing cost of crude oil for the companies. OMCs do not disclose insurance and freight costs incurred by them on purchasing crude oil.
“Iran is also on the northern side of the Strait of Hormuz/Persian Gulf through which 20mbpd+ of oil trade flows with Saudi, UAE etc also shipping and in the past it has warned of blocking the same. Hence a wider Middle East conflict with impact on Saudi, Iraq, Kuwait and UAE oil supplies can lead to sharp spike in oil prices, said Madhavi Arora, Lead Economist at Emkay.
Last year, Russian oil had become expensive for Indian oil refiners as shipments from Moscow started taking a longer route via the Cape of Good Hope to avoid Houthi attacks on commercial vessels on the Red Sea route.
India’s Energy ties with Iran
Prior to the US sanctions re-imposed on Iran by the Trump administration, Tehran was the third-largest crude oil supplier to India, till 2018-19. After the sanctions slapped by Trump, Indian oil refiners curbed oil purchases from Tehran, and India currently does not source crude oil from Iran.
Oil Minister Hardeep Puri recently reiterated India’s stance of not buying energy from any country under sanction, including Iran and Venezuela. However, with India increasingly looking to diversify its oil sources to secure energy availability, New Delhi has said it would be open to buying crude from Iran, if sanctions on the country are lifted.
Indian refiners including IOC, BPCL and HPCL have refineries suited to process Iranian oil.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
