Geopolitical Tensions to Keep Oil Prices High, Challenge India's Energy Sector

The report 'India's Energy Compass: The Strategic Shift (2015-2029)' noted that the global energy market has entered a period of significant uncertainty following recent geopolitical tensions in the Middle East.

"The global energy complex has entered a period of structural dislocation following the 2026 Middle East conflict," the report said.

It added that attacks on key infrastructure have significantly impacted global supply chains.

"Kinetic strikes on critical infrastructure have removed 2.5mbd of refining capacity and 17% of Qatari LNG supply," the report stated, adding that repair timelines could extend up to five years.

According to the report, the disruption has also affected global shipping routes, further tightening energy supplies.

"The effective closure of the Strait of Hormuz has forced a 95% reduction in maritime transit, rerouting trade via the Cape of Good Hope and inflating freight rates by 50%," it said.

Ambit Institutional Equities expects crude oil prices to remain structurally higher in the near term due to these disruptions. "Brent crude is established in a $80-$100/bbl range, supported by a physical market shortage of 7mbd and urgent OECD/SPR restocking requirements," the report noted.

The report further stated that geopolitical risk premiums are likely to remain embedded in energy prices for several years. "We expect protracted normalization of supply-demand dynamics and geopolitical risk premium will remain high till FY30," it said.

Ambit also highlighted that India is increasingly exploring energy partnerships to diversify its supply sources. It cited Reliance Industries' partnership with America First Refining to build a refinery in Texas as an example of this strategy. The report said the partnership could help India secure long-term hydrocarbon supplies while reducing reliance on traditional suppliers in volatile regions.

At the same time, the report cautioned that higher crude prices could pressure the financials of oil marketing companies (OMCs). Elevated crude prices and limited intervention on retail fuel prices could compress margins for OMCs in the coming years, potentially impacting their balance sheets, it added.

Overall, Ambit Capital noted that the evolving geopolitical landscape and energy supply disruptions are reshaping India's energy strategy, pushing companies to secure long-term supply partnerships and diversify energy sources to manage risks in the global oil and gas market.

- ANI