Escalating Tensions Between Iran and Israel May Cause Increase in Crude Oil Costs
India's Oil Market and Related Sectors Brace for Volatility Amidst Israel-Iran Conflict
The global oil market is in chaos after Israel's military operation on Iranian nuclear and military sites. JP Morgan has predicted oil prices could surge to $120 per barrel if Middle East tensions linger. This geopolitical shaking up could impact Indian oil marketing companies (OMCs) and related sectors.
On Friday, oil prices jumped more than 7%, trading near multi-month highs. Brent crude futures surged $5.1, or around 7.4%, to $74.46 a barrel, hitting an intra-day high of $78.50. This spike is mainly due to fears of prolonged Middle East instability resulting from Israel's airstrikes on Iran and subsequent Iranian retaliation.
India, a country heavily reliant on oil imports (approx. 80%), is at risk of facing increased fuel and freight costs. The conflict between Iran and Israel could lead to a spike in Brent crude prices. Iran holds about 9% of the world's oil reserves, and any disruption may impact Indian OMCs like BPCL, HPCL, and IOC, paints firms such as Asian Paints and Berger Paints, and the automobile and cement industries.
Industry experts are concerned about rising crude oil prices, which they say are negative for OMCs like HPCL, BPCL, Indian Oil, and other related sectors like aviation companies, paint companies, and tyre stocks. If tensions escalate and persist for three to six months, particularly if Brent crude prices exceed $82-85 per barrel, these sectors may experience demand slowdown or margin pressure.
However, OMC officials and sectoral analysts are confident that the current geopolitical situation will have minimal impact on Indian oil companies. Higher crude prices might keep retail fuel prices unchanged in the domestic market, despite volatility in the international market. Indian oil producers like ONGC and Oil India are expected to remain resilient, but if the conflict lingers, economic consequences could be profound, driving up Brent crude prices up by around 12%.
In conclusion, the Israel-Iran conflict has led to a sharp but temporary spike in oil prices, with limited downside for Indian oil marketing companies in the near term. However, if the situation escalates into a broader war or disrupts key shipping routes, India’s fuel economy and related sectors could face more severe consequences.
Sports activities in India might see a decline due to increased fuel costs, as a prolonged conflict between Iran and Israel could lead to a spike in Brent crude prices, impacting both the economy and everyday expenses. Unchanged retail fuel prices in the domestic market, despite volatility in the international market, could make sports equipment and travel for competitions more costly for athletes and teams.
