05

Iran’s recent drone and missile offensive against Israel could adversely affect India by increasing the cost of crude oil imports. Geo-political tensions in West Asia could elevate risk premiums, fueling concerns of potential supply disruptions from the oil-rich region.

Escalating Conflict Between Israel and Iran

The conflict between Israel and Iran has escalated, bringing their rivalry into the open, with Iran’s proxies in Lebanon, Syria, and Yemen also involved. Potential Ramifications for India If the conflict continues to escalate, neighboring countries, including India, will feel the economic consequences. Volatility in International Oil Prices 

Immediate to near-term volatility in international oil prices is likely, as tensions between Iran and Israel have already caused a surge in global benchmark Brent crude oil prices, surpassing $90 per barrel. Critical Importance of Oil Supply and Transportation

In a war-like scenario, oil supply and transportation

become critical, with both speculative and real risks emerging. Major oil producers have already reduced production, and tensions between Iran and Israel are exacerbating pressure on prices.

India’s Vulnerability to Oil Price Volatility As the third-largest consumer of crude oil, India depends on imports for over 85% of its requirements, making its economy highly sensitive to oil price fluctuations. High oil prices impact India’s trade balance, foreign exchange reserves, and inflationary pressures, while also affecting the value of the rupee.

Potential Shifts in Oil Supply Dynamics

The disruption of Iranian oil supply may lead China and India to compete for alternative sources, such as Russian crude oil. Additionally, major oil suppliers to India, including Iraq, Saudi Arabia, and the United Arab Emirates, could be affected by supply disruptions in the wider region.

Impact on Oil Shipments through Key Routes

The majority of oil shipments to India pass through the Persian Gulf and the Strait of Hormuz. Any disruptions in these routes, possibly caused by Iran-backed Houthi rebels in Yemen, could significantly impact regional and global oil flows.

Stability in the Strait of Hormuz

Despite tensions, the likelihood of the Strait of Hormuz being affected is low due to the relations between Saudi Arabia and Iran. This stability ensures that oil shipments continue smoothly, mitigating panic buying.

Diverse Crude Oil Supply Sources for India

India’s crude oil supply comes from a diverse range of sources, with Russia accounting for 33% of requirements in March. This diversity in suppliers reduces India’s dependence on any single country.

Future Outlook

While Lok Sabha poll regulations may temporarily prevent price increases, refiners and retailers may adjust retail fuel prices in line with global rates in the coming weeks to avoid losses.