The Middle East conflict is once again shaking global oil markets, and its impact is being felt far beyond the region. As tensions rise, crude prices are shooting up and so is the pressure in India. The government now faces a tough choice: protect consumers from higher fuel prices or help state-run oil companies struggling under growing losses. Crude prices climbed above $126 per barrel on Thursday after US President Donald Trump indicated that the naval blockade of Iran would continue, heightening concerns over sustained disruption in the Strait of Hormuz and worsening global supply pressures. The spike has significantly expanded losses for state-owned oil marketing companies (OMCs), which are already under strain from the Gulf war’s impact on energy markets. According to people familiar with the matter cited by ET, these companies are seeking immediate permission to raise pump prices and transfer higher global costs to consumers. Their losses are mounting across petrol, diesel, aviation turbine fuel (ATF) and LPG. Even so, the government is not expected to approve a hike immediately, despite the financial pressure on OMCs. One person said that the delay is partly due to speculation that linked the freeze in fuel prices to the recently concluded elections. “International prices have been volatile and have risen steeply, but it has been the government’s effort to ensure that consumers face the least problem that’s why our prices are stable,” Sujata Sharma, joint secretary in the ministry of petroleum and natural gas, said on Thursday. “The impact on (oil marketing companies) will be known with time.” Sharma had also dismissed reports of a fuel price increase from May 1 earlier this week. People aware of ongoing discussions said the current situation may not be sustainable for long, with OMCs eventually likely to seek compensation from the government if retail prices remain unchanged.

Consumer relief and OMC pressure

The Centre is already dealing with expanding subsidy commitments on LPG and fertilisers, making it reluctant to absorb further under-recoveries on petrol and diesel because of the possible impact on government finances. Allowing fuel prices to rise would improve the balance sheets of OMCs, but such a move carries the risk of driving inflation higher and putting pressure on economic growth. The scale of the global energy shock has been severe. Compared with February levels, average diesel prices in April rose 119%, petrol increased 69%, LPG was up by more than 40%, and ATF prices doubled. Brent crude, which stood at about $73 per barrel before the war began on February 28, has now surged dramatically. June Brent contracts crossed $126 before expiry on Thursday, while July futures were trading near $114. This marks one of the rare occasions when Brent’s monthly average has crossed $120 per barrel, a level seen only six times before, including the run-up to the 2008 global financial crisis and after the outbreak of the Ukraine war in June 2022. Domestically, oil companies have so far avoided broad-based retail fuel hikes by selectively adjusting prices. Premium petrol, bulk diesel and ATF for international aviation have been increased sharply in line with global prices. However, regular petrol and diesel prices at filling stations have remained frozen, domestic ATF has only seen partial increases, and LPG prices have risen by just Rs 50 per cylinder. In the early phase of the war-led price surge, there was an expectation that OMCs would be able to manage losses using profits built up during previous years of lower crude prices and elevated retail margins. But with the Gulf crisis showing no signs of ending soon, those buffers are shrinking, and discussions are increasingly shifting towards the possibility that a rise in pump prices may become unavoidable.