Iran’s military attack against Israel over the weekend raised concerns about a potential regional conflict impacting global oil supply chains. Oil prices recorded a decline on Monday as traders reduced risk premiums after Iran’s action. Brent futures for June delivery slipped 50 cents or 0.5 per cent to $89.95 per barrel, while West Texas Intermediate (WTI) futures for May delivery were down 52 cents or 0.6 per cent at $85.14 per barrel by 0630 GMT.
Last week, oil prices surged close to a six-month high amid concerns that Iran might retaliate for a suspected Israeli warplane attack on Iran’s embassy in Damascus. After Iran’s attack, analysts are concerned that crude oil prices could surpass the $100 level in the next few days.
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This was the first attack on Israel from another country in more than three decades. Iran’s Islamic Revolution Guards Corps (IRGC) launched more than 300 drones and missiles at Israel.
Iran is one of the major oil-producing countries, it produces around 3.2 million barrels per day of crude oil. The country also has significant control on the Strait of Hormuz which accounts for 30 per cent of oil transit and 70 per cent of oil shipment to Asia. Apart from crude oil, Qatar ships its LNG through the Strait of Hormuz accounting for a fifth of the global consumption.
Iran-Israel Crisis Impact On Oil & Gas Prices
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With the Iran-Israel conflict, a major oil supply risk there could be more strictly enforced oil sanctions, and Israel’s response could include targeting Iran’s energy infrastructure, IND said in a client note on Monday.
Prashant Vasisht, Senior Vice President & Co-Group Head of Corporate Ratings, ICRA Ltd says that an expanding conflict in the Middle East is a cause of concern for oil and natural gas prices.
“Strait of Hormuz is the world’s busiest energy channel and any closure of the same may lead to a surge in the prices of both oil and natural gas/LNG. Any surge in the prices of crude oil and natural gas would be detrimental for India as it relies on imports to the extent of 88 per cent of its crude oil consumption and 45 per cent of its natural gas consumption," he said.
About 20 million barrels per day of crude oil and condensate equivalent to about a fifth of the global consumption pass through the Strait of Hormuz of which around 70 per cent comes to Asia.
Swarnendu Bhushan, Co-Head of Research at Prabhudas Lilladher says that any escalation that may impact the oil production of Iran or affect the oil transit through the Strait of Hormuz can result in a sharp spike in the oil prices.
“This would affect oil marketing companies negatively as they may not be able to take commensurate price hikes. For upstream companies, realization is managed through windfall taxes which may rise commensurately, and hence have no impact on upstream companies,” he said.
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On Monday, shares of Indian oil marketing companies (OMCs) including Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) tanked 1.9 per cent, 2.14 per cent, and 1.8 per cent, respectively.
The oil prices have been fluctuating for the last two years due to the ongoing Russia-Ukraine war and the Israel-Hamas war. After Russia invaded Ukraine in 2022, oil prices jumped to $120 per barrel oversupply concerns as Western nations imposed sanctions on Russia, one of the world’s major oil exporters. High fuel and energy prices have been a major driver behind the higher cost of living worldwide in the past couple of years. Israel’s reaction to the attack would be key for global markets in the coming days.
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