US-Iran war: Oil prices surged on Monday after US and Israeli strikes on Iran, along with Tehran’s retaliatory attacks, disrupted the global energy supply chain. The spike in crude oil prices is emerging as a key risk not only for the Indian economy but also its (OMCs) as the nation imports a major chunk of its energy needs.
West Texas Intermediate was trading at $72.79 per barrel early Monday, marking an 8.6% jump from around $67 on Friday. Meanwhile, , the global benchmark, was trading at $79.41 per barrel, marking a 9% jump from Friday’s close of $72.87.
Back home, Multi-Commodity Exchange of India (MCX) crude oil prices surged more than 10% amid escalating tensions in the Middle East. The MCX crude oil contract for March expiry climbed ₹624, or 10.24%, to trade at ₹6,716 per barrel.
Against this backdrop, such as Bharat Petroleum Corporation, Indian Oil Corporation and Hindustan Petroleum faced a selloff, losing over 5% each.
How US-Iran war impact oil prices?
swung sharply amid rising tensions in the Middle East, with WTI and Brent crude hitting multi-month highs.
The rally was triggered by Iran’s retaliatory strikes across the region in response to continuing US and Israeli military actions, fuelling fears of potential disruptions to global oil supplies. Volatility intensified further after reports emerged of the death of Iranian Supreme Leader Ali Khamenei.
Another key driving factor was news of attacks on at least three vessels near the Strait of Hormuz, a critical shipping route that handles nearly 20% of global oil and gas trade.
Iran is said to have warned ships against passing through the Strait, prompting several shipowners and traders to temporarily halt transit, disrupting tanker movement through the corridor.
According to Kaynat Chainwala, AVP, Commodity Research, Kotak Securities, a sustained rally in oil prices would likely require a prolonged disruption of flows through the Strait of Hormuz, potentially lasting four to five weeks, in line with the timeframe referenced by Trump regarding military operations.
“Although OPEC+ plans to raise output by 206,000 barrels per day starting in April to mitigate supply risks, increased production would not fully compensate for a closure or severe restriction at a chokepoint that facilitates roughly one-fifth of global energy trade. If tanker traffic normalises, recent price spikes may fade; however, continued constraints could trigger a far more pronounced supply shock,” Chainwala said.
Meanwhile, brokerage firm JM Financial expects severe dislocation of oil supplies and global supply chains, with a spike in Brent crude prices to USD90-100/bbl, in the short term.
India is uniquely and acutely exposed to this disruption. Unlike economies with more diversified geography, India’s energy security is structurally tied to the Persian Gulf, according to a report by Enrich.
“A significant portion of its primary energy imports must pass through the Hormuz choke point, making any closure a direct threat to domestic industrial stability,” opined the brokerage.
Impact of rising crude prices on OMCs
For India, which meets nearly 85% of its crude oil demand through imports, a prolonged rise in crude prices poses both macroeconomic and sectoral risks. OMCs remain especially exposed, as higher costs can squeeze refining margins, raise operational and working capital needs, and result in increased borrowing expenses and higher debt burdens.
According to JM Financial, OMCs’ auto-fuel gross marketing margin (GMM) could be hit if Brent sustains above ~$70/bbl, as OMCs earn their historical ₹3.5–4/litre margin at Brent of ~$70/bbl.
At spot crude of ~$72.9/bbl, OMCs’ auto-fuel GMM is ₹2.9/litre (versus the historical margin of ~ ₹3.5/litre), while the gross auto-fuel integrated margin stands at ₹13.3/litre (historical average: INR 12.3/litre), as per the brokerage’s estimates.
This, in turn, can drag down consolidated EBITDA by 7–9%, with HPCL being the worst hit due to its higher exposure to the marketing business, it opined. “Wehave a cautious view on OMCs due to structural concerns around their aggressive capex plans in the refining and petchem business, opined the brokerage while maintaining a ‘Reduce’ rating on all three OMC stocks.
Can oil price hike impact petrol, diesel prices?
For Indians, the key question remains if an oil price hike can translate into an increase in petrol and diesel prices that have remained unchanged for some years now. According to analysts while immediate impact in unlikley a sustained increase can lead to such a possibility.
Sumit Pokharna, VP-Fundamental Research, Kotak Securities, believes that higher crude oil prices are negative for refining companies like OMCs, and if the situation persists, then a retail fuel price increase is also possible, but it may not be immediate.
Madhavi Arora, Chief Economist at Emkay, further explained that for every $1/bbl increase in Brent, the brokerage estimates an impact of ~ ₹0.52/litre on diesel and ~ ₹0.55/litre on petrol retail prices. It also noted that the government is not expected to cut excise duties to absorb part of the burden faced by OMCs, at this stage.
According to Arora, OMCs remain relatively well cushioned, with earnings from other business segments helping offset oil marketing losses, reducing the likelihood of a govt taking the hit on its books at this point.
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