India's Oil Marketing Companies Face Growing Losses as Crude Prices Skyrocket

India Faces Economic Pressure as Crude Oil Prices Surge

The Indian government has stepped up calls for austerity as rising crude oil prices and geopolitical tensions in West Asia put pressure on the country's economy, foreign exchange reserves, and fuel supplies. On May 12, Union Oil Minister Hardeep Singh Puri assured that India currently faces no fuel shortage and has enough supplies for the next two months.

According to Puri, India has adequate fuel availability despite the ongoing West Asia conflict. The government has increased LPG production to 55,000-56,000 tonnes from around 35,000 tonnes earlier to ensure uninterrupted supply. Additionally, India currently holds crude stocks equivalent to around 76 days of demand. Although this is below the International Energy Agency's 90-day benchmark, the government is now looking to further expand strategic reserves and create additional storage for LPG, crude oil, and gas.

India's dependence on crude oil imports makes it vulnerable to disruptions in the region. Daily crude demand in India stands at around 5.5-6 million barrels. The country imports nearly 88 percent of its crude oil needs, with around 40 percent of these imports passing through the Strait of Hormuz.

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The surge in global crude oil prices has significantly increased India's import bill and worsened pressure on the current account deficit. At the same time, the rupee has weakened beyond Rs 95 against the dollar. India's forex reserves have reportedly fallen by nearly $38 billion since the beginning of the conflict, prompting the government to focus on conserving foreign exchange.

To mitigate the economic impact of prolonged geopolitical tensions and elevated energy prices, Prime Minister Narendra Modi has urged citizens to reduce fuel consumption, postpone foreign travel, and avoid buying gold for a year. According to Puri, state-run oil marketing companies are incurring losses of nearly Rs 1,000 crore per day because fuel prices have not been increased despite the sharp rise in crude oil costs. Under-recoveries have reached Rs 1.98 lakh crore, while losses for the current quarter stand at nearly Rs 1 lakh crore.