The war between the US and Israel on one side and Iran on the other, now in its eleventh day, shows no signs of abating, sending crude prices soaring and worrying Indian companies, given the economy’s heavy reliance on energy imports.
The conflict presents a trifecta of risks for Indian companies—soaring crude prices, supply-chain disruptions, and a depreciating rupee, experts said. The benchmark Brent crude settled around $101 a barrel on Monday evening after briefly surging to as high as $119 during the day, while the to a record low of ₹92.33 against the US dollar.
While oil-marketing companies and air carriers will bear a direct brunt of the higher energy prices, others will face an indirect impact as oil prices feed into their input expenses. The Indian economy could take a hit if the inflationary effect of the conflict dents consumer demand.
“India Inc will likely see a partial impact in the March quarter earnings for companies still operating on existing inventories, while the full effect could become more visible in the first quarter of the next fiscal year,” said Pramod Gubbi, founder of Marcellus Investment Managers, a portfolio management firm.
If the Strait of Hormuz, through which a fifth of the global oil trade passes, remains closed for 2-6 weeks, it can push the three-month average Brent prices to $80-90, as per analysts at Nomura. If the conflict stretches longer, this three-month average can jump to even $110 per barrel, they warned.
Here is how various sectors will get impacted due to high crude prices:
Aviation: Indian carriers, especially IndiGo, are facing a . Not only are fuel prices rising, but closure of key air routes in West Asia is also disrupting operations. Aviation turbine fuel accounts for 30-40% of airline operating costs, and airlines have limited ability to pass on higher costs, particularly on domestic routes. Analysts at JM Financial estimate that for every $5 rise in Brent, IndiGo’s earnings could fall by about 13%, assuming the rupee remains stable. Restrictions across Gulf airspaces and major transit hubs such as Dubai International Airport are leading to longer routes, delays and potential cancellations. These hubs connect flights between Asia, Europe and North America, so any disruption can ripple across global aviation networks.
For IndiGo, the impact could be substantial given its strong exposure to the region. Investors are jolted by the airline’s majority of international routes to GCC (Gulf Cooperation Council—a grouping of six Arab states) and rising cost. While there have been some evacuation flights, the return to normalcy is uncertain. The airline’s shares have already fallen about 12% since the conflict began on 28 February with the launch of joint air strikes by the US and Israel on Iran.
To be sure, Air India Group has a higher exposure to West Asia than IndiGo. However, analysts could not quantify the impact of the West Asia crisis on their revenue and profitability as Air India Group is privately held.
Oil marketing companies: A prolonged rise in oil prices is because higher input costs may not be fully or immediately passed through via retail fuel price increases. India’s exposure to the Strait of Hormuz is much higher than the global average, with nearly half of the country’s oil passing through the narrow channel. Analysts at Nomura estimate a combined earnings before interest, taxes, depreciation, and amortization (Ebitda) impact of approximately ₹770 billion on all oil marketing companies (OMCs) for every $10 rise in Brent. Beyond $85 per barrel, OMCs may begin incurring losses, the Nomura analysts estimate. Since the beginning of the conflict, shares of Indian Oil Corporation Ltd, Bharat Petroleum Corporation Ltd, and Hindustan Petroleum Corp Ltd have fallen 12-15% compared to a 4.58% slide in the benchmark Sensex.
City gas distribution: These companies will find themselves in a s, facing higher feedstock costs and potential supply rationing, as a large portion of their gas mix relies on imports transiting the conflict zone. Liquefied natural gas (LNG) accounts for 30–40% of the sector’s total gas mix. Nomura analysts estimate that for every 10% increase in imported gas costs, Mahanagar Gas Ltd will see its Ebitda fall by 15%, Indraprastha Gas Ltd by 22% and Gujarat Gas Ltd by 27%. The three stocks have lost 14.55%, 9.42% and 8.68% since 3 March.
Fertilizers: About 30% of India’s fertilizer requirement is imported, and nearly 40% of these imports come from the Middle East. India also relies on the region for around 30% of key raw materials used to make fertilizers, including rock phosphate, phosphoric acid and muriate of potash. Another concern is the scarcity of LNG, which is used as a key feedstock to produce urea. Together, these factors could increase fertilizer costs and force the government to spend more on subsidies than what was initially planned, Crisil estimates.
Hotels and restaurants: Many hotels and eateries have warned that they may be forced to halt operations due to a shortage of commercial LPG cylinders. Two hospitality industry bodies have written to Petroleum Minister Hardeep Singh Puri, seeking urgent clarification on the supply of commercial LPG (liquefied petroleum gas). This request follows a new order from the Ministry of Petroleum and Natural Gas, issued on 5 March, that confused distributors.
The National Restaurant Association of India (NRAI) and the Federation of Hotel & Restaurant Associations of India (FHRAI) have raised concerns over the 5 March directive asking oil companies to prioritise LPG supply to households, which some distributors have misinterpreted as a bar on supplying commercial LPG cylinders to restaurants and hotels.
These bodies emphasize that restaurants rely on commercial LPG for daily cooking. Due to the confusion, some suppliers have begun holding back LPG cylinders. They warn that if this continues, it could hurt restaurant operations, lead to job losses, and affect food availability. They urged the government to provide clear information to ensure a steady supply for the hospitality sector.
Ceramics: Similar to the fertilizer sector, ceramic companies, concentrated in Gujarat’s Morbi, are also highly dependent on imported LNG and propane gas to fire their kilns. Gas distribution companies have already invoked force majeure clauses to restrict supplies to ceramic firms below their contracted volumes. Such supply uncertainties may force the majority of plants to operate at lower, or even nil, utilization levels, experts said. Asian Granito India Ltd, a ceramics firm, told investors on Friday that there could be a temporary and partial impact on its production.
Paints: Crude-linked derivatives are a key component in paint manufacturing, sparking concerns that rising oil prices could push up input costs and squeeze profit margins for paint companies. Ratings agency Crisil also noted that nearly 30% of paint production costs are linked to crude oil prices. Reflecting these concerns, shares of Asian Paints have fallen 6.54%, while Berger Paints and Kansai Nerolac have dropped 4.80% and 8.93%, respectively, since the start of the conflict.
FMCG: Higher crude prices are likely to hurt some large consumer packaged goods companies. Crude prices are crucial to margins of fast-moving consumer goods (FMCG) companies for two reasons—they directly determine the cost of transporting goods, but directly feed into costs of crucial inputs made from crude oil derivatives, such as plastic packaging and paraffin and mineral oils used in personal care products. Hindustan Unilever Ltd, the country’s largest listed FMCG company, may see medium-term pressure on margins, especially in its mass-priced portfolio of personal and home care products. This pressure comes at a crucial time; in its last quarterly results, chief executive Priya Nair had made it clear that the company is focused on volume-led growth, while preserving margins will take a backseat. Other companies vulnerable to these oil price shocks include Marico Ltd and Dabur Ltd, which have an extensive portfolio of mass-priced value-added hair oil.
Shares of HUL are down by 5.5% in the last week, while the benchmark Nifty50 is down by over 3%.
In a note from March 6, analysts at the brokerage arm of investment bank Nomura said raw material prices were inching up and could begin eating into the margins for large FMCG companies including Hindustan Unilever and Godrej Consumer Products in the next quarter. “Demand is still recovering and volume growth is still below pre-Covid levels. Thus, inflation/price-hikes can impact volume growth,” Nomura analysts said in the note.
Consumer Durables: Electronic appliances such as air conditioners and televisions are facing higher input costs for some quarters, as the prices of key imported inputs rise, largely due to the depreciation of the rupee and a rise in prices of metals such as copper and aluminium, and chips used in electronic goods. So far, the war has had no direct impact on these supply chains, but a further escalation in tensions may impact the cost of these key inputs further as the rupee continues to weaken against the dollar. Air conditioner makers are already rolling out new inventory at higher prices even as some market leaders such as Voltas struggle with declining margins.