ExplainedEnergy
Refining margins explained: how the Hormuz crisis lifted Reliance's profit by 41%
Reliance shares jumped more than 6% on Monday after earnings in its oil-to-chemicals business rose 68% in the September quarter. What a refining margin is, why war in West Asia has fattened it, and why it may not last.
The short answer
A refiner earns the gap between what it pays for crude oil and what it gets for the petrol, diesel and jet fuel it makes. That gap, measured per barrel through 'cracks', has hit historic highs because the West Asia war has disrupted fuel supplies from the Gulf. In the July to September quarter the Singapore diesel crack averaged $65.8 a barrel, up 252% on a year earlier, and Reliance's oil-to-chemicals EBITDA rose 68% to ₹25,203 crore, lifting group profit to shareholders 41% to ₹25,548 crore. The gains depend on tight fuel markets, a windfall tax on exports caps part of them, and a reopened Strait of Hormuz could shrink them quickly.
What is a refining margin?
It is the refiner’s cut on every barrel. A refinery buys crude oil, splits it into petrol, diesel, jet fuel, naphtha and other products, and sells them. The difference between what those products fetch and what the crude cost is the gross refining margin, usually quoted in dollars per barrel.
Traders track it product by product through “cracks”, the gap between the price of one fuel and the price of crude. When the diesel crack is high, a refiner earns more on each barrel of diesel it makes, whatever the crude price itself is doing.
Why are cracks so high now?
Because the war has squeezed fuel supply faster than it has cut demand. The Gulf is home to large refineries and is the route for much of the world’s oil, and attacks on tankers, the disruption in the Strait of Hormuz and a temporary shutdown of Saudi Arabia’s East-West pipeline have tightened supplies. Freight rates rose 15 to 20 times, Reliance said.
The result was the widest fuel spreads in memory. In the July to September quarter, the Singapore diesel (gasoil) crack averaged $65.8 a barrel, up 252% on a year earlier. Jet fuel averaged $59.3 and petrol $24.9. Crude rose too, with Dated Brent averaging $97 a barrel, up 40.6%, but fuel prices rose faster, by 50 to 78%. Global oil demand actually fell by 3.4 million barrels a day; it was supply that tightened.
How did that show up in Reliance’s numbers?
Reliance runs one of the world’s biggest refining complexes, at Jamnagar in Gujarat, and sells a large share of its fuel abroad. Its oil-to-chemicals (O2C) division, which covers refining and petrochemicals, earned ₹25,203 crore in EBITDA in the September quarter, against ₹15,008 crore a year earlier and ₹17,010 crore in the June quarter. Its margin rose to 10.9% from 9.3%.
“Our O2C business delivered a particularly strong performance this quarter, led by tight fuel markets,” chairman Mukesh Ambani said. The company also gained from higher chemical prices, with the polyester chain margin at a three-year high.
That one division explains most of the group’s jump. Group EBITDA rose 24% to ₹62,409 crore and profit to shareholders rose 41% to ₹25,548 crore, even as Reliance Retail’s profit fell. On Monday, the first trading day after the results, the shares rose as much as 6.22% to ₹1,237.30.
Reliance's oil-to-chemicals business, July to September 2026
- ₹2.32 lakh crore RevenueUp 44.2% on a year earlier
- ₹25,203 crore EBITDAUp 68% on a year earlier
- 10.9% EBITDA marginFrom 9.3% a year earlier
- ₹1.04 lakh crore ExportsUp 46.9% on a year earlier
Doesn’t the government tax these windfall gains?
Partly. In March the Centre brought back the windfall tax on fuel exports, a special additional excise duty first used in 2022 and dropped in December 2024. It started at ₹21.50 a litre on diesel and ₹29.50 on jet fuel from 26 March, is reviewed every fortnight, and stood at ₹24 a litre on diesel and ₹22 on jet fuel from 3 August. The aim is to keep fuel at home and claw back some of the extra profit.
But the levy does not reach all of Reliance’s exports. Jamnagar has a 33 million tonne a year refinery for the domestic market and a 35.2 million tonne export-only unit in a special economic zone. “The special additional excise duty and additional excise duty are not applicable on SEZ refineries,” said Jainendra Singh Kandhari, a joint secretary in the revenue department, in April. Reliance still listed the duty among the costs that weighed on the quarter.
Is this good or bad for India?
Both, depending on where you sit. High cracks mean big profits for refiners that export, and more tax for the government. They also mean India pays more for imported oil: the country’s crude import bill rose 46% to $90.6 billion in April to September. Pump prices for most households are set by state-run companies and the Centre’s taxes, which is why the government cut excise duty on petrol and diesel by ₹10 a litre in March.
Will the margins last?
Only as long as supply stays tight. Iran says it can reopen Hormuz within two days if Washington meets its terms, and Brent fell to about $112 a barrel on Monday as talks in Qatar went on. A real reopening would bring Gulf fuel back to market and narrow the spreads that made this quarter. For Reliance shareholders, that makes the September quarter less a new normal than a measure of how much the company gains when the world runs short of fuel.
The documents
- Media Release: RIL Q2 FY2026-27 Financial and Operational PerformanceReliance Industries, 30 October 2026