Updated April 15th, 2024 at 12:16 IST

How Israel-Iran conflict will have an impact on your pocket?

For India, heavily reliant on oil imports, this translates directly into concerns over rising fuel prices.

Reported by: Business Desk
Crude Oil | Image:Unsplash
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Israel-Iran war: Given recent geopolitical tensions and supply dynamics, crude oil prices are facing upward pressure, with analysts predicting a potential surge to $100 per barrel by September 2024. Factors contributing to this include production cuts by major oil-producing nations like Russia and OPEC+, alongside heightened tensions in the Middle East, a key oil-producing region.

For India, heavily reliant on oil imports, this translates directly into concerns over rising fuel prices. Also, any situation that leads to an oil rally remains a cause for worry as India is the third-largest oil importer after the US and China, and any fluctuation in oil across the world sends a ripple effect across the globe.

Despite recent cuts in fuel prices by state-run oil marketing companies (OMCs), further reductions seem unlikely amidst the current upward trajectory of crude oil prices.

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According to analysts, if the disturbance in the Middle East continues oil prices can hit $100 per barrel.  Crude oil prices have edged up by $10 per barrel in one month. The oil prices have remained stabilised 
OMCs, such as Indian Oil, are cautious and monitoring the situation closely, waiting for crude oil prices to stabilise before considering any further price adjustments.

Minister of Petroleum and Natural Gas, Hardeep Singh Puri, has echoed similar sentiments, highlighting the need for stability in crude oil prices before any decision on fuel price cuts.

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India's relationship with Iran in the oil sector also complicates the situation. While India previously sourced crude oil from Iran before US sanctions were imposed in 2018, there have been talks of potentially resuming oil imports if sanctions are lifted. This reflects India's efforts to diversify its oil sources to mitigate the impact of high prices.

Overall, the direction of crude oil prices will significantly influence India's energy security and economic outlook, with stakeholders closely monitoring geopolitical developments and supply dynamics in the coming months.

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Strait of Hormuz

The Strait of Hormuz holds immense global geopolitical significance due to its narrow passage connecting the Persian Gulf and the Gulf of Oman, serving as a crucial route for oil and LNG transportation. Around 18 million barrels of oil passed through it daily in 2020.

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It has been a focal point in conflicts such as the Iran-Iraq war in the 1980s, as control over the strait impacts international interests in oil flow. Despite alternatives like Saudi Arabia's pipeline, the strait's importance remains high, especially for entities like Saudi Aramco.

Legally, Iran has authority over the strait within its territorial waters, but international vessels have passage rights, though disputed. Tensions have escalated over incidents like tanker attacks and vessel seizures, reflecting its role in global diplomacy and security. Ensuring stability and unhindered passage through the strait is crucial for energy markets and international relations.

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Oil Prices and Inflation

A recent analysis highlights the inflation risks India faces due to surging oil prices. According to the study, for every $10 increase per barrel, consumer prices could climb by 0.2-1.4 per cent. This sensitivity to oil price fluctuations is a shared concern among Asian economies heavily reliant on crude imports.

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India could experience a 0.5 percentage point rise in its Consumer Price Index (CPI) for every $10 hike in oil prices. Such inflationary pressures could complicate the monetary policies of central banks, including India's Reserve Bank, potentially delaying rate reduction plans.

Analysts think that a rise in crude oil prices could derail the global war on inflation.

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Published April 15th, 2024 at 12:16 IST