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State Fuel Retailers Face Margin Squeeze
These state-owned companies, which together manage nearly 90 percent of India's retail fuel stations, are under pressure. They must absorb rising fuel costs without being able to increase selling prices. Government control over retail fuel prices prevents them from passing these higher costs on, leading to thinner profit margins and less predictable cash flow.
Global Tensions Threaten Energy Supply Chains
S&P Global's report highlighted India as one of several nations highly dependent on energy imports relative to its economic size. The agency pointed out that lifting the embargo on Russian crude might offer some relief but likely at a higher cost. Current conflicts involving the US, Israel, and Iran have caused crude and gas shipments to be stranded near the Strait of Hormuz, a vital passage for global energy trade.
The government has moved to ease concerns, assuring that India's roughly 5.5 million barrels of daily crude consumption are being secured through varied sourcing. Current import volumes surpass typical levels for this time of year, with India sourcing crude from over 40 countries. About 70 percent of these imports now arrive via routes bypassing the Strait of Hormuz, reflecting the oil marketing companies' success in finding diverse suppliers.
Economic Forecasts Adjusted Amid Energy Worries
Despite efforts to secure supply, the wider economic effects are worrying. S&P Global cautioned that a sharp rise in energy prices could severely strain both business and household finances, potentially leading to a global economic slowdown. Lowered revenue growth prospects and increased input costs risk shrinking corporate profit margins, and companies will face significant challenges passing these higher expenses to consumers.
Nomura's analysis supports these concerns. The brokerage adjusted its outlook, noting that high crude oil prices complicate the current positive picture of strong growth and low inflation. For India's fiscal year 2027, Nomura now expects the current account deficit to widen by 0.4 percentage points to 1.6 percent of GDP, consumer price inflation to rise by 0.7 percentage points to 4.5 percent, and the GDP forecast to be slightly reduced by 0.1 percentage points to 7 percent. Elevated crude prices and supply disruptions pose upward risks to inflation and deficits, and downward risks to growth, though potential capital inflows, export recovery, and reforms could offer offsetting benefits.
Wider Economic Impact: Downstream Sectors Hit
The report noted that industries relying heavily on energy costs, such as transportation, logistics, manufacturing, petrochemicals, and agriculture, are likely to see their profit margins and creditworthiness significantly squeezed. This could have a broad impact across various sectors, potentially affecting jobs and the wider economy.