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The armed conflict between Russia and Ukraine reduced demand for Russian crude, causing crude oil and gas prices to rise. According to ICRA, rising oil prices increase the country's fiscal burden while benefiting upstream oil companies.

Furthermore, domestic gas prices have been notified at USD 2.9/mmBtu (GCV basis) for H2 FY2022, implying that gas production remains a loss-making proposition for most Indian upstream producers. While domestic gas prices are expected to rise significantly in the next revision, the gas business of PSU upstream companies is expected to become profitable.

India's commodity imports from Russia and Ukraine account for less than 2% of total imports. Oil, gold, metals, and chemicals are essential commodities imported from other countries. With many countries imposing sanctions on Russia, the prices of the commodities are skyrocketing. As a result, concerns about India's growth and inflation projections are growing. If the current commodity price surge continues, it may impact the Indian economy.

As per Prashant Vasisht, Vice President & Co-Group Head at ICRA, some countries, including the United States, have banned Russian oil and gas imports, while others plan to phase them out gradually. Prices have risen as traders and refiners avoid Russian oil.

While an Iranian nuclear deal could increase the oil supply, it will not be enough to compensate for the loss of Russian oil because Iran is a much smaller producer than Russia. Natural gas prices have also reached all-time highs, as Russia is a large producer of gas and supplies roughly one-third of Europe's gas requirements.

Demand for petroleum products has increased slightly in the current fiscal year compared to the previous fiscal year, but it remains lower than pre-Covid levels. Crude price increases may hurt the recent demand recovery. The benchmark Singapore gross refining margin (GRM) has improved in recent months; however, high crude prices and weak global demand may have an adverse effect on the GRM.

However, there may be some inventory gains in the near term, which may help refinery GRMs. The retail prices of automobile fuels are being raised minorly, and oil marketing companies' losses would be prolonged if prices were raised in stages.

Vasisht went on to say about the impact on the gas utility sector, higher spot LNG prices have led to a slight decrease in demand and lower capacity utilisation of all LNG terminals compared to the previous year.

Increases in spot and long-term LNG prices are negative for new LNG terminals because demand growth is expected to be muted, affecting volumes and returns on these projects. High ranking relative spot and term LNG prices will have a negative impact on city gas distribution companies' margins on PNG (I) and PNG (C).

The surge in international crude oil prices may have a mixed impact on oil public sector companies, with improved refining margins expected due to increased demand. Still, marketing margins could be squeezed. This is due to the already high prices and consumer backlash. As a result, the marketing margins of PSU oil marketing companies may be adversely affected.