US-Iran Conflict: Impact on Indian Crude Oil Prices and OMCs

Global Oil Prices Surge Amid US-Iran Tensions

Oil Prices: The global oil market witnessed a sharp increase in prices following the escalation of tensions between the US and Iran. West Texas Intermediate (WTI) rose by 8.6% to $72.79 per barrel, while Brent crude, the global benchmark, surged by 9% to $79.41 per barrel.

Indian Energy Market: The Multi-Commodity Exchange of India (MCX) crude oil contract for March expiry climbed ₹624 (10.24%) to trade at ₹6,716 per barrel. The spike in crude oil prices poses a significant risk to the Indian economy, particularly to oil marketing companies (OMCs), which import a substantial portion of India's energy needs.

OMC Stocks: Stocks of OMCs such as Bharat Petroleum Corporation, Indian Oil Corporation, and Hindustan Petroleum faced a selloff, losing over 5% each, amidst concerns of higher crude oil prices affecting refining margins and operational costs.

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Market Analysis: According to Kaynat Chainwala, AVP, Commodity Research, Kotak Securities, a sustained rally in oil prices would require a prolonged disruption of flows through the Strait of Hormuz, potentially lasting four to five weeks. JM Financial expects severe dislocation of oil supplies and global supply chains, with a spike in Brent crude prices to USD90-100/bbl in the short term.

Impact on India: India is uniquely exposed to disruptions in the Middle East, with a significant portion of its primary energy imports passing through the Hormuz choke point. This poses both macroeconomic and sectoral risks to the Indian economy, particularly to OMCs, which may lead to increased borrowing expenses and higher debt burdens.

Fuel Price Impact: For every $1/bbl increase in Brent, the estimated impact on diesel and petrol retail prices is approximately ₹0.52/litre and ₹0.55/litre, respectively. However, the government is not expected to cut excise duties to absorb part of the burden faced by OMCs at this stage.