US-Iran Conflict Escalation Sends Global Oil Prices Soaring: Which Indian Energy Stocks Could Benefit

Global Oil Market Update

The closure of the Strait of Hormuz has resulted in a sharp increase in crude oil prices, with Brent crude rallying to $85 per barrel from $73 per barrel since the war began. This has led to a significant jump in crude oil prices, with 20% of global oil and LNG flows passing through the Strait.

Global Equities

The sharp rise in crude oil prices has had a negative impact on global equities, particularly in Asian markets. The region's economies are heavily dependent on crude imports, and a prolonged shutdown of the Strait of Hormuz could have cascading effects on the economies.

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Impact on Industries

Crude is not just a fuel that supports economic growth, but also a major raw material for many industries. Higher crude prices can affect their margins if they have to source oil at higher prices. However, upstream oil producers such as ONGC and Oil India Limited are likely to benefit from rising crude prices, as their revenue is directly linked to the price at which crude oil is sold in the market.

Buy Recommendations

JM Financial has a 'Buy' rating on both Oil India and ONGC, with target prices of ₹560 and ₹320, respectively. The brokerage estimates that every $1 per barrel rise in oil prices boosts their earnings by 1.5–2% each. Emkay Global also has a bullish view on the upstream oil companies, with target prices of ₹315 for ONGC shares and ₹550 for Oil India shares.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Negative Impact on OMCs

For oil marketing companies (OMCs), the brokerage said that auto-fuel gross marketing margins (GMM) could be hit if Brent sustains above $70 per barrel. This could lead to a decline in their consolidated EBITDA by 7–9%, with Hindustan Petroleum Corporation Limited likely to be the worst hit given its highest leverage to the marketing business.

Impact on LNG Suppliers

The shutdown of QatarEnergy LNG's main facility could lead to a temporary spike in spot LNG prices. This could temporarily hurt India's LNG/gas demand and therefore could be a near-term negative for volumes and margins for companies such as GAIL (India), Petronet LNG, Gujarat Gas, Gujarat State Petronet, Indraprastha Gas, and Mahanagar Gas.