Half of India's Oil Imports at Risk as US-Israel Strike on Iran Raises Hormuz Supply Concerns

Global Oil Markets on High Alert After US-Israel Strikes on Iran

Key Points:

• Brent crude prices are expected to move higher amidst concerns of possible supply disruption through the Strait of Hormuz.
• Around 50% of India's crude imports, approximately 2.6 million barrels per day, pass through the Strait of Hormuz, posing significant risks to the country's import bill, inflation, and current account deficit.

Market Analysis:

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• Brent crude was trading at around $72 to 73 per barrel in late February, and analysts expect prices to move higher as tensions rise.
• If shipping through key routes is affected, crude prices could move towards $80 or higher.
• Experts point to OPEC+ spare capacity, particularly in Saudi Arabia, which could prevent prices from staying elevated for long.

India-Specific Risks:

• A sustained 25% rise in oil prices could add around $15 billion to India's import bill, widen the current account deficit by 0.3% of GDP, raise inflation by 0.7 percentage points, and reduce real GDP growth by 0.2%.
• Risks also extend to trade and remittances from the Gulf, estimated at $40 to 50 billion a year, and to the 9+ million Indians living in the region.

Market Implications:

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• Upstream companies (ONGC, Oil India) may benefit in the short term from higher realizations.
• Downstream companies and OMCs (IOC, BPCL, HPCL), along with aviation, autos, paints, and logistics, face higher input costs and delayed price pass-throughs.
• The broader economy faces risks from inflation, current account pressure, fiscal strain, and a cautious RBI stance.

Global Outlook:

• OPEC+ output increases from April 1 by around 1,67,000 bpd could limit price gains if disruptions remain brief.
• Markets reopen on Monday with volatility expected, and crude futures, tanker movement, and any further developments overnight will be closely watched.