US-Iran Tensions Could Push India’s Crude Basket Above $75, Experts Warn

Prolonged US-Iran tensions may push India's crude basket above USD 75/bbl, raise inflation risks: Experts

Mumbai, July 8

The views came after the United States re-imposed strict sanctions on Iranian oil by revoking a temporary crude sales waiver and launched fresh retaliatory military strikes on more than 80 Iranian targets.

The escalation follows attacks on three commercial vessels, including crude and LNG tankers, near the strategic Strait of Hormuz, triggering a sharp rally in global crude prices. Brent crude surged nearly 5 per cent to around USD 76 per barrel, while NYMEX WTI climbed above USD 72.

Debopam Chaudhuri, Chief Economist at Piramal Group, told ANI that India is structurally better positioned to deal with such disruptions due to its diversified crude procurement strategy.

"From India's perspective, the economy is materially less vulnerable to such developments than in the past. India has significantly diversified its crude sourcing away from West Asia towards suppliers such as the United States, Venezuela and Russia, thereby reducing its exposure to temporary supply disruptions or policy-related shocks emanating from the region," Chaudhuri noted.

However, he warned that a prolonged conflict could significantly increase India's crude import costs.

"The move is certainly a negative for the correction in crude prices that we have witnessed over the past few weeks... if the current stance adopted by the United States and Israel persists for an extended period, India's crude import costs are likely to rise meaningfully from current levels. In such a scenario, India's crude basket could move well beyond USD 75 per barrel, compared with the current landed cost of around USD 68 per barrel."

Deveya Gaglani, Senior Research Analyst - Commodities at Axis Direct, said India is unlikely to face any major supply disruption even if the Strait of Hormuz is affected.

While noting that a closure of the waterway could push crude prices to the USD 85-90 per barrel range, Gaglani said, "India is unlikely to face a significant impact. Saudi Arabia has announced its deepest crude oil price cut for Asian markets in 20 years, which will help cushion the price shock."

He added that significant supply concerns would emerge only if crude prices sustain above USD 90 per barrel.

Anindya Banerjee, Head of Commodity and Currency Research at Kotak Securities, said crude markets remain vulnerable to any further escalation.

"The risk we would flag is this: the market had already fully unwound the war premium, with oil retracing all the way from $120 during the conflict to the low-$70s, which leaves it vulnerable to exactly this kind of re-escalation," Banerjee said.

He added that tanker traffic through the Strait of Hormuz remains 60-70 per cent below pre-war levels.

"For India the impact is indirect, as we do not buy Iranian crude: there is no supply loss, only a modest headwind to the import bill, the rupee and inflation."

Echoing similar concerns, Devarsh Vakil, Head of Prime Research at HDFC Securities, said higher crude prices could create near-term macroeconomic pressures.

"US revoked Iran's crude sales license yesterday, this move is bullish for crude prices in the near term, as it tightens supply and lifts geopolitical risk premium. For India, higher crude would mean a bigger import bill, renewed pressure on the current account, and possible upside risk to inflation. Refiners and OMCs could face margin volatility."

The impact is also spreading to natural gas markets.

"Natural gas prices edged higher after attacks on an LNG carrier near the Strait of Hormuz lifted European gas prices and strengthened expectations of higher U.S. LNG exports," Manav Modi, Commodities Analyst at Motilal Oswal Financial Services Ltd, told ANI.

He added that developments surrounding the Strait of Hormuz, US-Iran relations and weekly inventory data will remain the key drivers for global energy markets going forward.

— ANI