India’s state-run oil marketing companies (OMCs) are once again absorbing the shock of global energy volatility, with estimated LPG under-recoveries projected to reach Rs 40,484 crore by the end of May. The surge in losses comes against the backdrop of escalating tensions in West Asia, which have disrupted key global supply routes and sharply increased benchmark LPG prices.

At the core of the issue is a steep rise in international LPG prices, particularly the Saudi Contract Price, which serves as a benchmark for Indian imports. For April, this benchmark has jumped to $780 per metric tonne from $542 in March, reflecting a rapid escalation in global energy costs. The disruption is partly attributed to supply constraints in the Strait of Hormuz, a critical energy transit corridor, where an estimated 20–30 percent of global LPG shipments are currently affected.

This sharp increase in input costs has widened the gap between retail prices and procurement costs for OMCs. According to official data, companies are currently incurring under-recoveries of around Rs 380 per LPG cylinder. These losses are not immediately passed on to domestic consumers, highlighting a deliberate policy stance to shield households from global price volatility.

The government’s approach mirrors last year’s framework, where total LPG-related losses of approximately Rs 60,000 crore were split evenly between public sector oil companies and the central government. The current trajectory suggests a similar burden-sharing mechanism may emerge, although no explicit compensation roadmap has yet been outlined.

While domestic LPG prices remain partially controlled, commercial LPG pricing has seen a sharp upward adjustment. Effective April 1, the price of commercial LPG cylinders has been increased by Rs 195.50. These cylinders, primarily used by hotels, restaurants, and industrial establishments, are market-linked and revised on a monthly basis. However, their consumption accounts for less than 10 percent of total LPG usage in India, limiting their ability to offset broader subsidy-linked losses.

The divergence between domestic and commercial pricing underscores the structural imbalance in the LPG segment. Domestic consumers continue to receive subsidized or moderated pricing, with a standard 14.2 kg cylinder priced at Rs 913 and significantly lower rates for beneficiaries under the Pradhan Mantri Ujjwala Yojana.

Notably, petrol and diesel prices have remained unchanged despite rising global crude trends. This indicates that OMCs are absorbing not just LPG-related stress but also under-recoveries on transport fuels. Current estimates suggest under-recoveries of Rs 24.40 per litre on petrol and Rs 104.99 per litre on diesel at prevailing retail prices. This further amplifies pressure on the profitability of public sector refiners.

From a market perspective, this development has multi-layered implications. For India’s energy sector, sustained under-recoveries could weigh on earnings visibility for OMCs in the near term. Balance sheets may see increased stress, particularly if compensation from the government is delayed or only partial.

Historically, such periods of high under-recoveries have translated into margin compression and subdued stock performance for PSU oil companies.

At a broader level, the situation reflects India’s continued vulnerability to global energy shocks, particularly in LPG where import dependence remains high. The Strait of Hormuz disruption is a reminder of the geopolitical risks embedded in energy supply chains, which can quickly translate into domestic fiscal and corporate stress.

For the government, the policy dilemma remains complex. Passing on the full extent of price increases to consumers risks triggering inflationary pressures and political backlash, especially in a consumption-sensitive economy. On the other hand, sustained subsidies and under-recoveries strain fiscal resources and weaken PSU financials.