West Asia Conflict: Energy Supply Risks Outweigh Price Volatility

India's Energy Market Outlook Amid West Asia Conflict

Sanjeev Prasad, Managing Director and Co-Head at Kotak Institutional Equities, believes that the real risk for India in the escalating West Asia conflict is not the soaring crude prices, but the availability of gas supply.

Crude Oil and Gas Prices

Crude oil prices have surged to $119 per barrel before retreating to around $93. Meanwhile, global gas markets have tightened sharply, with Europe's benchmark natural gas prices increasing by 67% in a week due to disruptions in LNG shipments from Qatar.

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Vulnerability of Energy Transit Routes

The Strait of Hormuz, a critical energy transit route, is vulnerable to disruptions. Approximately 20% of global crude oil supply passes through this route, and any disruption would be challenging to replenish.

Risk to Natural Gas Supply

A significant quantity of global energy supply comes from the Middle East, particularly from Qatar. Disruptions in this region could lead to spiking oil and gas prices, and if the market believes that the situation is calming down, prices would decrease.

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Previous Oil Shocks

Previous oil shocks were largely driven by demand-supply imbalances, particularly during the global growth boom of the 2000s. However, the current crisis presents a different risk dynamic, with the issue being the availability of oil and gas rather than just higher prices.

Impact on India's Economy

From a macro standpoint, India will still be able to absorb higher oil prices. A dollar value change in crude oil prices and equivalent increase in gas prices would translate to approximately $2.2 billion to India's current account balance of payments, which is about 0.055% of GDP. Even in a stress scenario where crude and gas prices remain elevated, the overall impact could remain manageable.

Gas Availability Challenge

However, the bigger challenge lies in the availability of supply, especially in the event of disruptions to Middle East shipping routes. India's own math shows that almost 50% of the crude oil imported in 2025 came from the Strait of Hormuz, and the same applies to gas. India may still have some buffer when it comes to crude oil and petroleum products, but the situation is far tighter for natural gas, with limited storage capacity. In the event of non-availability, the price of crude or natural gas would not matter.