Oil Prices Likely to Stay Above $80 per Barrel Amid Ongoing West Asia Concerns

A sustained move above $80 per barrel for oil is increasingly likely, even under a relatively benign scenario, according to Harsh Gahlaut, co-founder & CEO of FinEdge. In an interview with Moneycontrol, Gahlaut highlighted that while tensions in the Middle East may ease quickly, supply normalisation, even in an optimistic scenario, is likely to take three to four months.

The current market recovery, which has seen significant gains in the last eight sessions, may be premature, as the post-ceasefire recovery is not yet durable. Markets are reacting more than pricing in, driven by the pace and unpredictability of geopolitical developments in West Asia. Current pricing appears to reflect a temporary supply shock rather than a sustained inflation cycle.

However, if elevated crude levels persist, the second-order effects could push inflation meaningfully higher over the medium term, suggesting that markets may still be underestimating the durability of inflation risks. The full transmission of higher oil prices through logistics, manufacturing, and broader input costs has yet to play out.

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Supply Normalisation Timeline

The prolonged conflict has already created stress across global energy systems, with tightening supplies feeding into inflation and weighing on consumption. Each additional week of uncertainty increases the risk of deeper economic spillovers, forcing markets to reassess risk premiums. A sustained recovery hinges on a clear and timely resolution, absent which the probability of a meaningful correction, potentially in the range of 15-20 percent, cannot be ruled out.

Gahlaut believes that India's growth numbers may be impacted by no more than 50 bps in the current fiscal, despite Middle East tensions. However, the key variable is the duration of the conflict, and if tensions persist, the impact on growth could exceed current estimates.

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

Private Credit Market Concerns

Private credit has emerged as a major theme in financial markets, driven by the search for yield amid relatively muted returns from both public equities and traditional fixed income. However, the pace of inflows and the expanding risk appetite in this segment raise concerns. Parts of the private credit market appear overheated, with structures becoming more complex and, in some cases, underregulated.

Investors need to be highly selective in this asset class, as chasing yield without fully understanding liquidity risks and credit underwriting standards could lead to adverse outcomes, particularly if the macro environment weakens.

Government's Response to the Crisis

India has made meaningful progress in strengthening its energy resilience over the past decade through strategic petroleum reserves, ethanol blending, expansion of renewable energy, diversification of import sources, and cleanup of legacy liabilities such as oil bonds. While crises often act as catalysts for reform, the current approach is likely to be evolutionary rather than disruptive.

The government may see incremental policy moves, such as further liberalisation of exploration, a faster transition to alternative fuels, and incentives to deepen domestic production and storage capacity. Long-term investments, including advancements in nuclear energy, could play a pivotal role in reducing import dependence.

Portfolio Strategy

Gahlaut's personal portfolio approach is intentionally simple and long-term oriented. He avoids making short-term sectoral bets based on geopolitical developments and instead focuses on consistency through disciplined investing. The focus remains on quality companies with strong balance sheets and the ability to navigate cycles, rather than chasing themes.

He hasn't made any material changes to his portfolio in response to recent events and doesn't intend to. Most of his financial goals are a decade away, and reacting to near-term volatility can often be counterproductive. Staying consistent and avoiding over-adjustment has worked well for him so far.