Prolonged Tensions In Middle-East To Affect India Inc’s Profits

The uncertainties have impacted global crude oil markets, with Brent hovering in the range of $73-76 per barrel over the past one week — up from an average of $65 per bbl during April-May 2025. While this is still lower than the fiscal 2025 average of $78 per bbl, any escalation of tensions could result in a further spike in oil prices. If crude oil prices continue to be elevated over longer periods, it could impact India Inc’s profits, finds Crisil.

Repercussion of any significant increase in the crude oil prices from the current levels would vary across sectors that are directly or indirectly exposed to it and impact on profitability will depend on the ability to pass on the cost increase. Higher oil prices will benefit upstream oil companies because it translates to more revenue, while their costs are fixed. For downstream oil refiners, operating margins could get squeezed due to higher input cost as they may have limited ability to fully pass on the same through increase in retail fuel prices.

For specialty chemical companies, about 30 per cent of the operating cost is crude linked. The ability to pass on a steep rise in input cost would be limited as the sector is only just witnessing return to normalcy after seeing profitability pressures due to suppressed demand compounded by continued Chinese dumping.

Similarly, the paint sector could see some pressure on margin as 30 per cent of its production cost is linked to crude, where competitive intensity could limit the ability to pass on elevated input prices to customers and impact profitability to some extent.

For aviation companies, fuel accounts for about 35-40 per cent of operating cost. Further, the operators will also witness higher fuel cost due to increased travel time on account of airspace closures or diversions.

About half of the tyre sector’s operating cost is crude linked. As for revenue, 60-65 per cent accrues from the replacement market and the balance from original equipment manufacturers (OEMs). While the tyre makers can quickly pass on input price increases in the replacement market with relative ease, the pass-on normally happens with a lag for OEM sales which could impact margins in the interim.

For flexible packaging and synthetic textile firms, while over 70-80 per cent of production cost is crude linked, the impact of an increase in its price could be moderate due to the improved demand-supply scenario.

The near-term impact on most Indian firms is expected to be limited, with low capex intensity and balance sheet strength of companies offering cushion from potential vulnerabilities. However, a prolonged escalation could aggravate the impact mainly due to rise in oil prices and disruption in supply chains which could stoke inflation.