Fuel price hike and OMC profits: Are India’s oil firms really making windfall gains?
In recent days, petrol and diesel prices have gone up by around Rs 7.5 per litre, increasing daily costs for consumers. This has once again sparked a familiar debate, are oil marketing companies (OMCs) making windfall gains amid the Middle East crisis?At the centre of this discussion is a headline number, a combined profit of Rs 77,821 crore in FY 2025–26. It sounds huge, but the reality is more complex. Once you factor in margins, total turnover, past losses, and global oil price swings, the picture is not as simple as profit or loss. The government had already reduced excise duty on petrol and diesel by Rs 10 per litre on 27 March. Earlier this week, Union finance minister Nirmala Sitharaman said that reducing excise duties on petrol and diesel would lead to a revenue loss of around Rs 1 lakh crore. “The government is estimated to take a revenue impact of over Rs one lakh crore in 2026 after the central excise duty cut on petrol & diesel,” the FM stated. Since the onset of the crisis retail fuel prices in India have risen by around 8–9%, well below the 20–67% increase seen across neighbouring economies. In Nepal, petrol is priced at Rs 136.47 per litre and diesel at Rs 141.50 per litre, while in Pakistan petrol is priced at Rs 139.17 per litre and diesel at Rs 138.82 per litre.
Huge profits amid crisis — Are OMCs benefiting?
Union Minister Hardeep Singh Puri had earlier said that OMCs were losing nearly Rs 1,000 crore a day. But after four rounds of fuel price hikes, the question is whether their financial situation has actually improved. “If you look at the fiscal situation, if you look at the fact that my oil companies are losing Rs 1,000 crores every day, the under recovery is going to be Rs 1,98,000 crores. The losses are Rs 1 lakh crore, if you look at the quarter. In that context, how long can you keep it like this? Where is the oil? It used to be around $64 or $65. It has gone up to $115 in that basket,” minister Puri said.Even after OMCs reported Rs 77,821 crore profit for FY26, most of the impact from the Middle East crisis is not yet fully visible in current earnings. It is expected to show up in Q1 FY 2026–27 results.Another key point is timing. Indian OMCs were operating on 50–60 days of crude inventory that had already been bought at pre-crisis prices. So FY 2025–26 profits largely reflect cheaper, earlier crude purchases.The impact of higher crude prices will start appearing only when newer, costlier crude enters the system, mainly from late March onwards. This means the real pressure is likely to show up in Q1 FY 2026–27 results, which will be released in August 2026.Because of this lag, the current profit figures do not fully capture the crisis impact. In fact, if crude prices stay high, OMCs could see stress in the coming quarters, even higher than the current profit pool.
Understanding ‘super normal profits’ for OMCs
On paper, the Rs 77,821 crore profit works out to a 3–4% margin on a massive turnover of nearly Rs 20 lakh crore. In commodity businesses like refining and fuel retailing, this is generally considered a normal range.Take Indian Oil Corporation, for example. It has a turnover close to Rs 10 lakh crore, with profits usually around Rs 20,000–30,000 crore, which again translates to a margin of about 3%.Across the sector, OMCs typically operate on thin margins of around 1–3% over a full cycle. That’s because fuel pricing is highly sensitive to global crude movements, government policies, and time lags in cost recovery.Looked at another way, if a business with Rs 20 lakh crore turnover made just Rs 2,000 crore profit, the margin would fall to 0.1%, too low for a company of this scale to even function smoothly, manage cash needs, or plan future investments. That’s why OMCs require a steady profit pool to keep operations running and fund big-ticket investments like refinery expansion, renewable energy projects, pipelines, storage systems, and long-term energy security needs.At the same time, on a global scale, India’s OMC profit pool is relatively modest.In recent years, trading house Vitol has reported annual profits of around $35 billion. Major global energy companies such as BP, Shell, ExxonMobil and Chevron have posted profits running into tens of billions of dollars in the post-2022 cycle.Now compare that to the combined Indian OMC profit of Rs 77,821 crore, which translates to roughly $9 billion.It is also noted that ExxonMobil alone routinely posts annual profits more than three times the combined Indian OMC pool, while Vitol can generate nearly four times that amount in a strong year.By this comparison, Indian OMC profits are not positioned as super-normal.
The huge profit jump
Some commentators have pointed to the Rs 77,821 crore profit in FY 2025-26 as a 130% jump over FY 2024-25 and called it a windfall during a crisis.However, this comparison is misleading due to an “artificially depressed base”. FY 2024-25 OMC profit stood at Rs 33,602 crore, which is Rs 47,384 crore lower than FY 2023-24. The decline was driven almost entirely by Rs 40,434 crore in absorbed under-recoveries on domestic LPG during that year.When compared against a three-year cycle, FY 2023-24 (Rs 80,986 crore), FY 2024-25 (Rs 33,602 crore) and FY 2025-26 (Rs 77,821 crore), the average profit comes to around Rs 64,000 crore per year.This is presented as the more accurate baseline for any windfall assessment, rather than a single-year comparison that distorts the impact of LPG absorption in FY 2024-25.
Where do OMC profits go?
A key structural feature of the OMC system is ownership. The companies are majorly state-owned.Roughly half of the annual profit is returned to the government as dividend, in addition to corporate tax contributions. This dividend income supports public expenditure on roads, highways, railways, metros and broader infrastructure development.The remaining retained profit is used for capital expenditure, including refinery expansion, energy diversification, pipeline infrastructure and long-term capacity building.In FY 2024-25, OMCs absorbed Rs 40,434 crore in LPG under-recoveries to maintain the domestic cylinder price at Rs 550. That burden was funded from the same profit pool that is now under scrutiny and has since been compensated.Meanwhile, at the center of the whole debate are soaring global crude prices, which have jumped from the $70 per barrel mark before the Middle East conflict, have now jumped beyond the $100, continuously swinging within and beyond it. The crisis, which has entered its third month has continued to escalate ever since the US and Israel launched joint strikes on Iran on February 28. After the attacks, Tehran tightened its noose on the strategically crucial Strait of Hormuz, which carried 20% of the globe’s energy supplies. Now, as the oil shipments continue to be under pressure, economies across the world are struggling with strained energy reserves and price hikes.
