Even as the surprise attack by Hamas on Israel last week threatens to upend the fragile peace in West Asia, there is no immediate threat to India’s import of crude oil from the Middle East, particularly from Iraq and Saudi Arabia.

However, the war has fuelled volatility in the price of crude oil in the international market. Prices fell last week on concerns over interest rates, recession and consumer spending. High prices will impact India’s import bill and margins of oil marketing companies (OMCs).

Government officials and analysts anticipate that if the conflict escalates further or its duration increases, there is a chance that it may impact movement along the energy trade routes posing a threat to oil markets. “Right now, the situation is too fluid to form any hypothesis. So far, there is restraint in the Arab world. But, if Iran gets involved or countries like Saudi Arabia are pulled in, then it can snowball into a major conflict across the Middle East,” a senior government official said.

‘Wait and watch’

It’s a “wait and watch” policy for now, the official said, adding that there seems no threat to cargoes on the Suez Canal as of now.

A senior official with a refiner said that so far, there has been no information on any threat to oil routes or cargoes to India. “Of course, there are palpitations about what happens next. But trade is going on. Prices, however, will be a different story, at least for the next few weeks,” he added.

Volatile prices

Global crude oil prices clawed back some of their losses from last week on Monday after the attack on Israel. It also reflected in prices at the two major crude oil benchmarks, which appreciated around 4 per cent. Brent Crude had hit $88.15 a barrel, while WTI Crude rose to $86.38. On Tuesday afternoon, Brent fell slightly to $88.13 a barrel, whereas WTI stood at $86.35. On October 6, Brent closed at $83.44 a barrel, its biggest weekly decline since March 2023.

Vortexa’s chief analyst for Asia Pacific, Serena Huang told businessline, “From a supply perspective, there is no immediate impact of Middle East exports to India. However, oil prices have rallied as the market prices are embroiled in the uncertainty and volatility resulting from the conflict. This indirectly means that India will have to pay more for its crude imports unless prices normalise in the coming weeks.”

Kpler’s Lead Analyst (Dirty Products and Refining) Andon Pavlov said, “This is entering a bit of political territory, but from the perspective of logistics, there shouldn’t be any notable disruptions. If there is a political decision towards a further escalation of the conflict and a potential spillover into other countries, this will be another thing. For the time being, it appears that all major actors in the region are mostly interested in containing the conflict close to where it is currently. Iraq is so far a bit quiet on the topic, whereas Saudi Arabia’s diplomatic stance opens the door for interpretations, but is nowhere near taking a clear stance on the conflict, I would argue, at least not to the same degree as Iran did.”

Global head of Oil Demand Analysis at S&P Global Commodity Insights Kang Wu said, “Oil demand reacts mostly to pricing and physical interruptions. Market sentiment could react fast to the tragedy in the Middle East regarding oil prices. The world demand for oil would not be severely impacted, and it will continue to decline sequentially until the first quarter of 2024, provided that oil prices do not surge and remain at higher levels.”

Energy security

Vortexa’s Huang emphasised that the conflict is a fresh reminder of the threat of geopolitical risks on energy security.

On the other hand, Kpler’s Pavlov said that the general consensus is that there will be a normalisation in oil markets in the next couple of days. It is in nobody’s interest to have a disruption in oil flows globally and the conflict areas in general have a somewhat smaller outright share in energy market trade routes than other places in the region. “That being said, there is a real possibility of escalation of the US sanctions against Iran, which may pose a threat to the global oil market. For now, it seems that China (Iran’s largest client) is more or less keeping neutral, so until there is a clear signal of US/Israeli strikes against Iran, we remain a bit cautious on seeing any material impact on oil markets, beyond the initial shock. Of course, if things deteriorate, then the risk premiums on moving commodities through the region will pick up, but considering that India’s crude supplies come predominantly from the Middle East and Russia, only the latter is at a de facto risk of disruptions. Again, for this to occur, we will need to see Egypt taking steps towards having an involvement in the conflict, which is not the case,” he explained.

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