OMCs’ profits reflect normal refining margins, not crisis windfall

State-run oil marketing companies (OMCs) posted a combined net profit of ₹77,821 crore in FY26, but the earnings reflect a return to normal profitability rather than a crisis-driven windfall, according to government and industry data reviewed amid criticism over fuel price hikes following the West Asia conflict.

The profit pool, spread across Indian Oil Corporation, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited, amounts to a net margin of roughly 3-4% on combined turnover estimated near ₹20 lakh crore, broadly in line with global commodity refining benchmarks.

Criticism from Opposition parties has centred on the 130% jump in profits from FY25 levels. However, FY25 profits had fallen sharply to ₹33,602 crore after OMCs absorbed ₹40,434 crore in LPG under-recoveries to keep household cylinder prices capped, creating what officials describe as an artificially depressed comparison base. Adjusted for that one-off burden, FY26 profitability is broadly comparable with FY24 combined profits of ₹80,986 crore, rather than an exceptional spike. Industry officials argue the scale of earnings must be viewed against the size of operations.

India’s three OMCs together generate annual revenue of about ₹20 lakh crore, while individual refiners such as IOC alone post turnover close to ₹10 lakh crore annually. Analysts say a 1-3% operating margin is typical for large commodity refiners and necessary to sustain capital expenditure, refinery upgrades and working capital requirements.

A single refinery expansion programme can cost between ₹50,000 crore and ₹60,000 crore, with the sector targeting refining capacity expansion beyond 310 MT per annum by 2030. The companies also contend that FY26 earnings were largely insulated from the impact of the Strait of Hormuz disruption because refiners were processing 50-60 days of pre-conflict crude inventory purchased before the escalation in West Asia. s a result, the higher crude acquisition costs, freight premiums and insurance surcharges linked to the conflict are expected to be reflected mainly in Q1 FY27 earnings, due for publication in August.

The Strait of Hormuz carries nearly one-fifth of global crude flows and its disruption triggered a sharp rise in oil prices and shipping costs across Asia.

The debate over OMC profitability has intensified as crude prices remain elevated following the Iran-linked supply disruption and concerns over prolonged instability in the Gulf shipping corridor.