Strategic Reserves Shield India from Middle East Oil Crisis, Price Hike Looms
India sees no immediate oil supply disruption amid Iran-Israel tensions
New Delhi: With the escalatory situation due to rising conflicts between Iran and Israel, India is unlikely to face any near-term disruption in oil supplies from the closure of the key supply route of the Strait of Hormuz as the country is self sufficient with crude inventories to meet at least 10 days of requirements and fuel stocks covering another upto 7 days. However, the immediate fallout is expected to be reflected in oil prices due to disruption of the supply chain globally, government official sources said.
The government’s reaction came soon after reports of ‘killing and arson’ kept unfolding, saying that the Islamic Republic’s supreme leader Ayatollah Ali Khamenei has been reportedly killed, following US and Israeli military strikes on Iran. However, the government is confident that it will hardly impact the oil sector as far as India’s oil reserve is concerned. In line with the government, analysts also suggest that the conflict may not last very long, as New Delhi has contingency plans in place if tensions escalate.
“We are constantly monitoring the situation that arose following tensions between Iran and Israel. We don’t see any disruption on the oil supply chain in the near term as India is self-sufficient with our crude inventories to meet at least 10 days of requirements and fuel reserve covering another upto 7 days. But there may be some oil price volatility and broader macroeconomic effects if the Iran crisis escalates further,” a government functionary said.
As the tensions around the Strait of Hormuz are continuously rising, it has already pushed Brent crude prices toward a seven-month high of $73 per barrel and may face geopolitical risk, even as physical supply disruption remains unlikely in the near term. Strait of Hormuz — a strait between the Persian Gulf and the Gulf of Oman, which provides the only sea passage from the Persian Gulf to the open ocean and is one of the world’s most strategically important choke points, is a key route through which a significant share of India's crude and LNG imports transit.
Experts in the oil sector are of the view that India’s oil supply chain does not yet face structural insecurity, though the country may face oil price volatility in the near term. “In the current escalation scenario, the initial impact is likely to be price-driven rather than volume-driven. A geopolitical risk premium would lift Brent prices, alongside increases in freight rates and war-risk insurance costs,” said Sumit Ritolia, lead research analyst, refining and modelling at commodity market analytic firm Kpler.
Aditi Nayar, chief economist at ICRA also said that the situation in West Asia is unfolding, and the extent to which it prolongs and widens would have a bearing on India's macros, including things like the impact of fuel prices on inflation and the twin deficits, as well as remittances. “The escalating conflict in the Middle East and reported attacks on several oil producers are likely to exacerbate volatility in crude oil prices,” said Prashant Vasisht, senior VP and co-group head, Corporate Ratings, ICRA Ltd.
However, oil traders are bracing for heightened volatility next week, with some models pointing to prices moving towards $80 a barrel if supply flows are disrupted or face credible threats. “The Strait of Hormuz remains a critical global energy choke point, with nearly 20 percent of global petroleum liquids and 20 percent of global liquefied natural gas (LNG) shipments transiting through the route. As Iran and several Middle East energy producers straddle the Strait of Hormuz, any escalation in regional conflict could impede energy shipments through this corridor,” he said.
“Any attack on oil and gas production facilities of other major Middle East producers would further aggravate supply concerns. Crude oil prices have already increased from approximately $65 per barrel to $72-73 per barrel over the past few days, reflecting the build-up of geopolitical tensions in the region. A prolonged and/or widening conflict involving multiple oil and gas producers and disruption at the Strait of Hormuz could adversely impact global crude oil and LNG supplies, potentially leading to a further rise in global energy prices,” he added.
Even Kpler vessel tracking data showed that 2.5-2.7 million barrels per day, or about 50 per cent of India's crude imports, transit the Strait of Hormuz, largely sourced from Iraq, Saudi Arabia, the UAE and Kuwait. “Over the past two to three months, India's dependence on Middle Eastern barrels has increased as refiners have pivoted away from a portion of Russian volumes. As a result, the relative weight of Gulf-origin crude in India's import basket has risen, increasing short-term sensitivity to any disruption in Hormuz transit,” Ritolia said.
