West Asia crisis: Brent above $100 could slice corporate margins by half

BS 1000 companies brace for potential earnings collapse if crude keeps climbing

A sharp rise in crude oil prices due to the US-Iran conflict is likely to contract corporate margins and reduce overall profits in the coming quarters. Historically, corporate operating profit margins have shown a strong negative correlation with international crude prices.

 

This relationship has been particularly pronounced in recent years. Earnings before interest, tax, depreciation, and amortisation (Ebitda) margins — also called operating margins — of BS1000 companies have steadily risen over the past four years, coinciding with a decline in crude oil prices.

 

The BS1000 is an annual ranking of India’s largest listed companies, excluding banking, financial, and insurance, based on revenue.

 

For instance, operating margins of BS1000 companies improved from 15.1 per cent of revenues in 2022-23 (FY23) to a record 19 per cent during April–December 2025 (nine months of 2025-26/9MFY26). Over the same period, Brent crude prices were up 32 per cent, averaging $95.3 per barrel in FY23 and $64.8 in 9MFY26. In contrast, when crude prices more than doubled between 2020-21 (FY21) and FY23, corporate margins fell roughly 390 basis points (bps), from 19.01 per cent in FY21 to 15.13 per cent in FY23.

 

Both crude prices and corporate margins contracted in 2019-20 as the Covid-19 pandemic sharply curtailed global economic activity, hitting corporate earnings and energy demand.

 

Outside these exceptions, Indian corporate margins typically react negatively to rising crude prices — and vice versa. BS1000 companies, for example, saw margin pressure between 2009-10 (FY10) and 2012-13 (FY13) when crude averaged $114.8 in 2011-12 (FY12), up from $70.6 in FY10. Margins then recovered from FY13 to 2016-17 as crude prices fell to $47.8 in 2015-16 from their FY12 peak.

 

Brent crude has risen 43 per cent since the end of February 2026 and 34 per cent over the 12 months ending March 2026 (FY26). In contrast, crude averaged $64.8 in 9MFY26, down 17 per cent from $78 in 9M of 2024-25 (FY25). Lower energy prices in 9MFY26 supported corporate margins, with non-financial companies’ Ebitda margins rising nearly 100 bps to 19 per cent from around 18 per cent in FY25. One bp equals one-hundredth of a per cent.

 

“A 40 per cent rise in crude to an average of $100 per barrel could push raw material costs up by roughly 20 per cent, outpacing potential sales growth of 12 per cent and compressing operating margins by up to 36 per cent. For non-financial corporates, core operating margins (excluding other income) could fall from around 15 per cent to 8 per cent, risking outright earnings contraction,” says Dhananjay Sinha, CEO & Co-Head of Institutional Equities at Systematix Group.

 

If this scenario unfolds, overall profits in the non-financial sector could be halved. For comparison, listed companies (excluding banking, financial, and insurance) reported core operating margins of 16 per cent during 9MFY26 and 15.6 per cent in the third quarter (October–December/Q3) of FY26. Over the past 20 quarters, these margins have ranged from 12.4 per cent to 17.6 per cent, averaging 15.6 per cent.

 

According to Sinha, the 2026 US/Israel-Iran conflict has triggered one of the most severe oil supply disruptions in six decades. Even a sustained 5–10 per cent shortfall in energy supply could create a debilitating economic shock.

 

Others see a limited downside if hostilities in West Asia end soon and oil supply stabilises. “We see limited earnings downgrades for 2026-27E and 2027-28E if the US/Israel-Iran conflict ends within the next two to three weeks and oil and gas supply conditions improve over the coming months,” write analysts Sanjeev Prasad, Anindya Bhowmik, and Sunita Baldawa of Kotak Institutional Equities.

 

Historically, changes in crude prices have positively correlated with the Nifty 50 index, which has usually risen alongside oil. Higher oil prices often signalled stronger global economic activity and benign financial conditions. This time, however, Nifty 50 has fallen despite a crude rally: the index was down 5.1 per cent in FY26, even as Brent crude gained 34 per cent, indicating that the current situation differs from past oil price shocks.