Iran contributes nearly one-third of the total output by the Organisation of Petroleum Exporting Countries (OPEC+) and stands as the group’s third-largest producer.
New Delhi: With the multiple attacks by the United States on three Iranian nuke facilities — Fordow, Natanz, and Esfahan on Sunday, both the government and oil industry have raised several concerns and a hike in oil prices is expected again on Monday due to possible disruption in the supply chain. After a week of sharp swings in crude prices, experts, however, said that crude oil would continue to witness heightened volatility if the ongoing Middle-East conflict lingers for a long time.
Following the US bombing of Iran's nuclear sites, Teheran is learnt to have indicated that closing the Strait of Hormuz for shipping is one of the options on the table to pressure its adversaries for which India may face several challenges for supply-chain disruption in the country. “The escalation of the Iran-Israel conflict will not only hurt India's macro-economy, but also its fiscal balance. A $10 per barrel increase in crude oil prices will add upto 40 basis points to the cost burden,” experts said.
However, the government is confident, saying that though it may be a big challenge for India, it is exploring all possible options to protect the oil sector in the country from the supply disruption, if any. “The Iran-Israel escalation is the most challenging for us. As of now, the situation is quite manageable and energy rates are under control,” an official from the oil ministry said.
Iran contributes nearly one-third of the total output by the Organisation of Petroleum Exporting Countries (OPEC+) and stands as the group’s third-largest producer. Any disruption in its supply could significantly impact global energy markets including India, especially if Tehran chooses to retaliate or threatens to close the Strait of Hormuz — a vital shipping lane through which nearly 20 percent of the world’s oil passes.
The government, however, said that India would navigate through this turbulence. “We are exploring all possible options to maintain our stocks intact. We expect more oil to come onto the market from the West - countries like the US and Canada. There is no shortage of oil in the world. We are monitoring the situation constantly,” the official said.
Meanwhile, India has increased its purchases of Russian oil in June, importing more than the combined volumes from Middle-eastern suppliers such as Saudi Arabia and Iraq, amid volatile markets caused by Israel’s attack on Iran. “In June, Indian refiners are projected to import 2-2.2 million barrels of Russian oil per day, the highest in the last two years and more than the total volumes bought from Iraq, Saudi Arabia, the UAE and Kuwait,” preliminary data by global trade analytics firm Kpler showed.
India is the world’s third-largest oil importing and consuming nation. It bought about 5.1 million barrels of crude oil, which is converted into fuels like petrol and diesel in refineries. “Furthermore, imports from the US rose to 439,000 bpd in June, a massive jump from 280,000 bpd purchased in the previous month. The projections for imports from the Middle-East is at around 2 million bpd in June, which is lower than May's buying,” Kpler report showed.
Experts, however, highlighted that a surge in crude oil prices is a negative for India’s oil marketing companies like HPCL, BPCL, Indian Oil, along with other sectors like paints, tyres and aviation, who use crude as a key input material. “If crude oil prices rise to $75 per barrel, it will hurt the macro-economy. A $10 per barrel increase in crude oil prices will add 30-40 basis points to the cost burden. Additionally, it will also add to India's fiscal burden, although it could be manageable,” said Santanu Sengupta of Goldman Sachs.
While Rahul Kalantri, VP Commodities at Mehta Equities noted that crude oil continues to witness heightened volatility, with prices swinging sharply due to developments surrounding the Israel-Iran conflict. “Geopolitical tensions and supply fears continue to support oil prices despite temporary pullbacks,” he added.
