The market’s reaction to the joint US-Israel strikes on Iran wasn't exactly subtle. The war is choking the Strait of Hormuz, hurting tanker flows and causing oil markets to react. Brent crude price is now at $78 a barrel.
Back home, the benchmark Nifty 50 index fell by 1.2% on Monday, while shares of state-run Indian oil marketing companies (OMCs) were down around 4%. OMCs include Bharat Petroleum Corp. Ltd (BPCL), Hindustan Petroleum Corp. Ltd (HPCL) and Indian Oil Corp. Ltd (IOCL).
Investors in OMC stocks now face heightened concern as peak earnings coincide with increasing tail risks. Even before the latest escalation in Iran, stock prices remained stagnant despite a blockbuster December quarter (Q3FY26) in which OMCs doubled their combined year-on-year profits. The geopolitical developments since then have pushed Brent crude up from $60 a barrel in early January to almost $80 a barrel, justifying investors’ hesitation.
In light of Trump’s penal tariffs on Russian crude, India has shifted its procurement strategy to rely more heavily on oil from the Gulf. More than half of India’s imported crude makes its way through the Strait of Hormuz, so any disruption there is a serious worry for OMCs.
Marketing margins will bear the brunt
These companies’ margins are composed of refining margins—earned from refining crude to petroleum products, and marketing margins— from selling refined petroleum products at retail pumps. While refining margins are driven by crack spreads and Singapore gross refining margins, the typically larger marketing margins are constrained domestically by indirectly capped pump prices. A crack spread is the difference between the price of a barrel of crude oil and the market value of the refined products.
Marketing margins will therefore bear the brunt of the recent escalation. When crude touched $70 a barrel, Investec Equities estimated diesel marketing margins at ₹1 a litre, down from ₹3 a litre in Q3FY26. Now, with oil at $78 a barrel, diesel margins are likely to have turned negative.
Petrol had held up better until last week, with Investec estimating marketing margins at ₹7 a litre. However, petrol forms a smaller share of OMCs’ volumes. Rising crude means petrol cracks are swinging violently, and with a lack of pricing levers at the pump to protect downside, the math is set to change. Petrol margins may well have compressed this week, dragging overall margins down further. Every $1 per barrel rise in crude above $70 could compress marketing margins by ₹0.55 a litre, according to JM Financial.
Stock reactions signal varying impact
The impact will vary by OMC. IOCL is the largest domestic OMC by capacity and has some petrochemical exposure to take the heat off marketing margins. Investec estimates IOCL’s marketing-to-refining ratio for FY27 at 1.2, the lowest among OMCs. In fact, OMCs’ spectacular Q3 performance was led by IOCL, which quadrupled its profit-after-tax year-on-year to ₹12,126 crore. The stock has held up better, rallying almost 8% in 2026 so far.
At the other end of the spectrum, HPCL stock is down 15% after Q3 earnings disappointed. It is smaller, and its strategic priorities are driven by its upstream parent, Oil and Natural Gas Corp. Ltd. HPCL’s FY27 marketing-to-refining ratio is estimated to be the highest at 2.1. BPCL sits in the middle at 1.4, and has also seen investor optimism around recent greenfield expansion plans. The stock is down less than 2% this year.
Rising geopolitical tensions have brought stock valuations into sharp focus, making investors less tolerant of expensive multiples. With the stocks trading at an EV/Ebitda of around 6 based on consensus Bloomberg estimates for FY27, the risk-reward profile appears increasingly skewed against investors in light of the current geopolitical threats.
The Street’s reaction from here will hinge on how the situation evolves in Iran. India can manage short disruptions with this strategic petroleum reserves and floating Russian inventories. But a prolonged war raises the probability of repeated margin shocks, not just one-off hits.