Fitch Ratings believes US sanctions on two of Russia’s largest crude oil producers, Rosneft and Lukoil, and the EU’s ban on refined imports derived from Russian crude, are unlikely to have a significant effect on the refining margins or credit profiles of our rated Indian oil marketing companies (OMCs). However, the scale of the impact will depend ultimately on how long sanctions remain in place and how rigorously they are enforced.

Russian crude accounted about 33 per cent of India’s crude oil imports in January-August 2025. Its discounted price has provided support to Indian OMCs’ EBITDA and profitability. We generally expect the OMCs to comply with the sanctions, in line with their public statements. However, some refiners may continue to process Russian crude from unsanctioned sources.

Fitch believes the sanctions will dampen global demand for products tied to affected crude, leading to wider spreads for refined products. This should help to mitigate downward pressure on refiners’ profitability as they use less discounted Russian crude, pay more for alternative supplies, and deal with more volatile shipping and insurance costs. Refiners that continue to process Russian crude may enjoy wider discounts on this portion of their crude use.

High spare capacity in the global crude market should help limit upward pressure on the OMCs’ raw material costs, by dampening oil prices more broadly. We assume Brent crude prices will average US$ 65 per barrel in 2026, from US$ 70/bbl in 2025.

Private refiners with significant EU export exposure could face additional sanctions-related risks, as proving compliance with the new sanctions regime could be challenging. It can be difficult to verify crude oil origins once different grades are blended before refining. Affected companies may opt to diversify sales to other markets, optimize their mix of different crude oil grades, or to invest in stronger compliance and traceability systems over the medium term.

Indian OMCs’ EBITDA in the first half of the financial year ending March 2026 (FY26) was broadly in line or slightly ahead of Fitch’s expectations, as lower crude costs and robust gasoil spreads helped to support gross refining margins (GRMs) of around US$ 6/bbl-US$7/bbl, up from US$4.5/bbl-US$7/bbl in FY25.

We expect lower crude costs, coupled with rising refined product demand in India and very high refinery capacity utilisation to offset risks to GRMs from slowing global growth, supporting mid-cycle levels of around US$6/bbl in FY27. We think marketing margins will remain steady, assuming that the authorities do not mandate lower retail prices or increase the excise duty on transport fuels.

The Indian government has also approved Rs. 300 billion support package for Indian Oil Corporation Ltd (IOC, BBB-/Stable), Hindustan Petroleum Corporation Limited (HPCL, BBB-/Stable) and Bharat Petroleum Corporation Limited (BPCL, BBB-/Stable) during 2QFY26. This will help cover the OMCs’ under-recoveries on selling domestic liquid petroleum gas (LPG) at subsidised prices below their cost, and should add to the companies’ cash buffers.

The Issuer Default Ratings of IOC, HPCL and BPCL are driven by their strong direct and indirect linkages with the state of India (BBB-/Stable), and the high likelihood of extraordinary sovereign support if needed.