The ongoing conflict between Israel and Iran has raised concerns about a disruption in oil supply from Iran. As a result, the Brent crude oil prices spiked to multi-month highs. There are worries that an extended conflict may impact supplies by a 1.5 – 2 million barrels per day supply of crude oil.
According to a report by JM Financial, if Iran’s crude oil supply gets disrupted by 0.5 to 1 million barrels per day, it could lead to global crude oil prices surging by 5 to 10 dollars per barrel in the medium term.
Impact on Brunt crude oil prices
Brent crude oil price, the major benchmark for global crude oil prices, is going to see a limited effect due to the disruption in Iran’s oil supply, says the JM Financial report. Despite the 7 percent jump on Friday, the prices are expected to stabilize between $75-80 per barrel.
The JM Financial points out the key reason for the limited effect on the Brent crude oil prices. Firstly, there was there is an excessive output of crude from the non-OPEC countries in the calendar year 2025. There could be an oversupply of 1 to 2 million barrels per day in the year.
Secondly, the spare capacity of Saudi Arabia and the United Arab Emirates could be used to fill the gap created by the offset of supply from Iran. Saudi Arab and the United Arab Emirates has a spare capacity of 2 miilion baareels per day 1 million barrels per day, respectively.
Crude surge impact on Indian oil companies: JM Financial maintains Buy on ONGC, Oil India
Oil India and ONGC are likely to benefit from the increased crude oil prices in the global market, elaborated the JM Financial report. An increase of $1 per barrel in the crude oil prices will increase the Earnings per Share for the two companies by 1.5 to 2 percent.
Secondly, the government removed the windfall tax on crude oil in December last year, which means that there is no cap on ONGC and Oil India’s net crude realisation. In the near term, there is of return of windfall tax on crude oil. Looking at the favorable conditions for Indian oil companies, JM Financial has maintained a Buy on ONGC and Oil India.