After three years of blockbuster margins fuelled by ultra-cheap Russian crude, the country’s refining sector is moving into a new — and tougher — earnings cycle. Gross refining margins (GRMs), which touched record highs during the peak of geopolitical supply disruptions, are now expected to cool and stabilise at $6-8 per barrel, marking a clear shift from windfall gains to structurally sustainable profitability.
At its peak in FY24, Russian oil made up nearly 36% of India’s crude import basket, flooding refineries with barrels discounted by $8-10 per barrel to Brent and propelling GRMs to a historic $10-12 per barrel.
Backing the outlook, CareEdge Ratings said the sector’s performance is currently being powered by “the dual engines of high GRMs and healthy marketing margins”, but this equation is changing as global crude dynamics realign.
“As we transition into FY27, the narrative is likely to shift from high GRMs to moderate but sustainable GRMs,” said Hardik Shah, director at CareEdge Ratings, adding that margins are expected to moderate “due to global supply pressures and realignments in crude oil sourcing,” before settling at “$6-8 per barrel, which is accretive to the historical average”.
The report, however, cautioned that while the outlook remains supportive, “the durability of this trend will depend on global crude prices remaining benign, though they can be susceptible to sudden geopolitical trade dynamics,” even as marketing margins are expected to improve in the medium term with steady retail fuel prices.
The shift signals the slow unwinding of the Russian crude bonanza that had reshaped India’s refining economics since FY23. As global supply chains stabilised, that advantage narrowed sharply. Discounts shrank to $3-4 per barrel through FY25, dragging margins down to $4-6 per barrel, before plunging further to $2-4 per barrel in the first quarter of FY26. By Q3FY26, Russia’s share in India’s crude imports had already tapered to around 30%, with further reductions expected as sourcing strategies diversify.
Geopolitical Pivot
What began as a market-driven correction has now been accelerated by geopolitics.
Fresh US sanctions imposed in November 2025 on major Russian crude entities, followed by the European Union’s January 2026 ban on products refined from Russian oil, tightened the supply channel further. The turning point came in February 2026, when India agreed to gradually scale back Russian crude purchases in return for a sharp reduction in US tariffs on Indian exports — from an effective 50% to 18% — pushing refiners to redraw procurement plans towards Middle Eastern, US and Venezuelan grades.
CareEdge estimates that the shift away from discounted Russian barrels could raise the weighted average cost of India’s crude basket by $1.5-2 per barrel, directly compressing the margin premium refiners have enjoyed since FY23.
The volatility of the transition has already played out in earnings. After the steep fall in early FY26, GRMs rebounded sharply to $8-10 per barrel in Q2FY26 and surged further to $9-13 per barrel in Q3FY26 — far outperforming the Singapore benchmark of $4-5 per barrel — aided by temporary widening of Russian discounts, strong diesel and jet fuel cracks, falling crude prices and efficient inventory management.
Yet analysts see the rebound as the final phase of the Russian discount cushion rather than a fresh margin super-cycle.
Favourable Soft Landing
Supporting the sector’s soft landing is a favourable crude price environment. Brent crude averaged around $62 per barrel in December 2025 — nearly 15% lower year-on-year — stabilising near $63-64 per barrel through Q3FY26 before edging up to about $66.45 per barrel in February 2026. CareEdge expects crude prices to remain range-bound below $70 per barrel, a level that continues to support refining profitability without forcing politically sensitive fuel price hikes.
For India’s oil marketing companies, the message is clear: the golden phase of profits driven by cheap Russian crude is ending. What lies ahead is a more disciplined, efficiency-led cycle — steadier, resilient and sustainable, but without the spectacular windfalls of the past three years.