The heightened tensions between Iran and Israel have caused ripples in global oil markets, with crude oil prices inching closer to the $100 per barrel mark. This situation holds particular importance for import-dependent nations like India, where over 85 percent of energy requirements are met through international oil markets.
In the recent advances of the Iran-Israel conflict, Israel and its allies, including the US, UK, and France, reportedly hindered a momentous attack by Iran on Israel. Despite this, stock markets in Israel, Saudi Arabia, and other Middle Eastern countries experienced paltry declines on Sunday.
Iran launched over 300 drones and missiles towards Israel on Saturday night, but the majority were grapped before entering Israeli airspace, resulting in zero casualties. However, a 10-year-old girl in Israel suffered serious injuries from falling shrapnel, and an army base sustained slight damage.
Iran’s attack was reportedly retaliation for a suspected Israeli strike on its consulate in Syria on April 1. This strike resulted in the deaths of top Revolutionary Guards commanders. The attack followed months of tensions between Israel and Iran’s regional allies, which were sparked by the conflict in Gaza.
Iran & Israel conflict impacts on India’s oil prices.
India’s vulnerability to fluctuations in global oil prices is evident in the direct linkage between international crude oil prices and the retail prices of petrol and diesel in the country. The recent spike in tensions, marked by Iran’s attacks on Israel on April 13, has already exerted pressure on oil markets, with Brent crude futures settling at $90.45 per barrel on April 12, reflecting a 1 percent increase attributed to the growing tensions in the Middle East.
India’s equity markets have already been under pressure due to fading expectations for significant Federal Reserve interest rate cuts this year following the US’ March inflation print. This could get exacerbated with Iran launching a wave of drone and missile attack on Israel in retaliation against the April 1 air strike on the Iranian embassy compound in Damascus.
US President Joe Biden’s condemnation of Iran’s attacks on Israel and his pledge of support for Israel have further added to the uncertainty in oil markets. Biden’s commitment to convene G7 leaders to coordinate a response to Iran’s actions has put additional pressure on prices.
India’s oil relations with Iran add another layer of complexity to the situation. Before US sanctions disrupted trade, India was a significant importer of Iranian crude. Talks of potential sanctions relief under the Biden administration have sparked interest in re-establishing trade with Iran, offering a potential diversification of energy sources for India.
Analysts, including those at JPMorgan Chase & Co., have forecast that oil prices could reach $100 per barrel by September 2024. This guidance is primarily based on production cuts by major oil-producing nations like Russia, coupled with geopolitical tensions in the Middle East, a key oil-producing region. Sharekhan, in a note on April 3, also anticipated a strong performance in oil prices in the second quarter of 2024, bolstered by geopolitical rifts in the Middle East and OPEC managing strong compliance with crude oil production targets.
India is closely monitoring the rising tension between Iran and Israel due to the possible economic consequences for New Delhi. With over 80 percent of its crude oil needs imported, any escalation could profoundly affect India’s economy. A spike in oil prices would impact growth, increase inflation, disrupt trade balance and current account deficit, thereby putting pressure on the rupee.