Discounted Oil Prices Anchor India’s Stability
By Sanjeev Oak
In a significant financial achievement, India’s state-owned oil marketing companies reported a fourfold increase in profits for the recently concluded fiscal year. This impressive growth came despite global fuel price volatility. By sourcing oil at discounted rates from Russia, these companies managed to stabilize domestic fuel prices for over two years, helping to keep inflation in check.
A Surge in Profits Amid Global Instability
Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL)—the three leading state-run oil marketing firms—recorded a combined net profit of ₹80,986 crore in the 2023–24 fiscal year. This represents a remarkable fourfold increase compared to the previous year. The companies, tasked with refining crude oil and marketing products like petrol, diesel, and naphtha, leveraged international crude oil market dynamics to their advantage.
Notably, the Russia-Ukraine war caused unprecedented fluctuations in global oil prices, pushing crude prices to $116 per barrel at one point. While major economies struggled with the burden of soaring energy costs, Indian consumers were largely shielded. Since June 2022, Indian oil companies ceased the daily pricing mechanism tied to global benchmarks, fixing petrol and diesel prices at ₹96.72 and ₹89.62 per liter, respectively.
The Role of Russian Crude
Following the onset of the Russia-Ukraine conflict, Western nations imposed stringent sanctions on Russia, including freezing assets and expelling Russia from the SWIFT payment system. In response, Russia offered crude oil to India at significant discounts, making it a more attractive supplier than traditional Gulf nations. Initial discounts reportedly reached $30 per barrel, encouraging India to pivot its procurement strategy.
This move proved pivotal as India’s oil marketing companies mitigated earlier losses incurred during periods of elevated global prices. For instance, during April–September 2022, these companies reported losses but rebounded strongly in subsequent quarters, culminating in a ₹19,086 crore profit for the 2022–23 fiscal year.
Economic Benefits of Discounted Imports
Data from the Investment Information and Credit Rating Agency (ICRA) underscores the economic advantages of Russian crude imports. The savings from discounted purchases amounted to $7.9 billion in the first 11 months of 2023–24, a 54.9% increase from $5.1 billion in the previous fiscal year. While India’s overall crude imports remained steady at approximately 278 million tons, the share of Russian oil surged from 21.5% in 2022–23 to 36.1% in 2023–24.
Furthermore, India capitalized on refining and exporting petroleum products to Europe, bolstering its export revenues by 14.8% in the previous fiscal year.
Stability Amid Global Unrest
Despite renewed volatility in global oil prices triggered by the October 2023 Israel-Hamas conflict, India remained insulated due to its continued reliance on discounted Russian crude. Domestically, fuel prices have remained largely stable, with only a minor reduction of ₹2 per liter in March 2024.
Dividends to the Government
The surge in profits has translated into increased dividends for the government. IOC is set to pay a dividend of ₹8,726.5 crore, a 300% increase over the previous year. BPCL and HPCL will contribute ₹2,413 crore and ₹1,852 crore, respectively.
A Mixed Outcome for Consumers
While Indian consumers have benefited from stable fuel prices over the past two years, they have not directly reaped the rewards of the oil companies’ record profits. A reduction in fuel prices could have provided much-needed relief, but the stability itself has played a crucial role in controlling inflation and shielding households from the impact of global energy crises.
India’s strategy of leveraging discounted Russian oil has not only boosted corporate profits but also contributed to domestic economic stability. Even as the global energy landscape remains uncertain, India’s oil companies appear well-positioned to sustain this momentum.