Middle East on edge: what does this mean for Indian oil markets? – The times of India

The Middle East is on the boil and concerns are emerging about what this could mean for India. New Delhi imports almost 88% of its crude oil needs, so any disruption to global supplies could quickly increase oil bills and fuel inflation. New security concerns around the Strait of Hormuz have already caused global crude oil prices to rise sharply.Brent crude rose more than 10% to $80 a barrel, while U.S.-traded oil rose about 9% to $73. The spike signals growing nervousness in the market over potential disruptions to supplies through one of the world’s busiest oil routes.

What does the conflict in the Middle East mean for Indian oil markets?

The development is of particular importance for India, which is largely dependent on imports to meet its crude oil needs. Moreover, any sustained increase in global prices is likely to increase the country’s import bill and increase fuel-driven inflationary pressures.As the conflict continues to escalate, major disruptions could see the Strait of Hormuz and the Strait of Bab el-Mandeb, two crucial sea lanes connecting India to the Gulf, as well as key markets in North America and Europe.Price increasesCrude oil plays a crucial role in everyday consumer products such as detergents, biscuits, toothpaste, paint and packaging. Petroleum derivatives are widely used in products such as soaps, shampoos, creams, hair oils, bottles and tubes. These inputs constitute more than 25% of production costs for FMCG companies and about 40% for paint manufacturers. Therefore, if crude oil prices continue to rise, these everyday products could become even more expensive. “Also, demand will be affected in states like Kerala, Uttar Pradesh, West Bengal and Telangana, which have high remittances from the Gulf,” Abhijit Roy, CEO of Berger Paints, told ET.Arup Chauhan, promoter of Parle Products, India’s largest biscuit maker, told ET that “the escalation (in Brent oil prices) overall would have a cascading effect.”“Let’s hope that things will settle down in about 72 hours.”Increase the deficitAjay Bagga, banking and markets expert, told ANI that about 20 to 22 million barrels per day, which is roughly one-fifth of global oil consumption, flows through the Strait of Hormuz. Even short-term disruptions at this chokepoint tend to drive up insurance premiums, freight costs and crude benchmarks. Markets are already seeing a surge in war risk insurance, tanker diversion and naval escort activities, along with higher embedded logistics costs, he noted.Bagga outlined a range of possible price outcomes. With limited escalation, Brent could go to $100-115 per barrel. If maritime disruptions occur, prices could rise to $120-140, while continued closure risk could push oil prices to $150 or higher.Every $10 increase in crude oil increases India’s current account deficit by roughly 0.4-0.5% of GDP and increases CPI inflation by 30-40 basis points. “This is not simply a geopolitical story. It is a macroeconomic story,” he said.He added that sectors such as aviation, chemicals, automotive, paint and oil marketing companies could come under pressure if higher crude oil prices are not fully passed on. Potential relative winners include upstream oil companies, defense, IT due to the US dollar hedge and gold-related activities. “Geopolitical risk is no longer episodic. It is structural. 2026 marks the return of hard geopolitics,” Bagga said, urging investors to stress test portfolios for $120 oil, diversify geographically, own real assets and hedge currencies.Diversifying oil basketGTRI indicated that in the event of a closure of Hormuz, refineries could divert supplies via pipelines to Red Sea ports. India could also increase supplies from Russia, the United States, West Africa and Latin America and draw on its strategic petroleum reserves to cushion short-term shocks.However, the risks remain unevenly distributed across fuels. Sumit Ritolia, principal research analyst for Refining and Modeling at Kpler, said while India may be able to cope with higher crude prices and temporary supply disruptions, LPG supplies appear more vulnerable. “The escalating tensions in the Middle East once again highlight a structural reality: India remains materially exposed in the Strait of Hormuz – not just for crude oil, but even more so for LPG and LNG,” said Sumit Ritolia.Meanwhile, energy policy expert Narendra Taneja said oil markets may see only a brief phase of volatility following the recent escalation of the conflict between Iran and Israel. He expected the situation to stabilize within seven to 10 days so that the United States and Israel could move toward a diplomatic engagement after achieving their immediate objectives.Speaking to ANI, Taneja said, “I am concerned about the way things are going, but my own feeling is that things will probably start to stabilize within the next seven to 10 days. Probably the United States and Israel will say, okay, we have achieved what we wanted to achieve, and they will call for peace or negotiations and so on.”