Crude prices have seen a fresh spike as the tension continues to escalate across West Asia. The Brent oil futures, the global benchmark for oil, once again breached the $100/bbl mark in early Asian trade while the US benchmark, West Texas Intermediate, is trading near the $95/bbl level.
What really stands out is that oil prices surged despite the International Energy Agency agreeing to release a record 400 million barrels of oil to combat the global oil crisis, caused by the disruption of supply around the Strait of Hormuz– a crucial sea route for ferrying Middle Eastern oil.
Hormuz crisis: India facing LPG crunch
Oil and natural gas prices have been swinging wildly ever since the disruption at this waterway passage between Iran and Oman. The impact of the same is being felt in India as well, as the country imports nearly 50% of its crude and around 80% of its LPG supply through this critical energy route.
The government on March 9, invoked the Essential Commodities Act and directed all refineries to “divert 100% of propane and butane streams away from petrochemical production and towards LPG”.
No gas cut for homes & vehicles – Refineries take 35% hit
In an official press conference held by the Petroleum Ministry, a senior government official confirmed that priority sectors are fully protected amid the current energy supply constraints.
The official added that 100% supply would be maintained for domestic PNG for households and CNG for vehicles with no cuts. Other priority sectors, including tea industry, manufacturing units and other industrial consumers connected to the national gas grid have been given compensation of nearly 80% of their average supply over the last six months.
While fertiliser plants will receive about 70% of their average supply. Meanwhile, lower-priority sectors including refineries and petrochemical units will take a reduction of about 35% to ensure uninterrupted access for household and essential needs.
Iran threatens oil at $200/bbl: Analyst say surge improbable
As economies like India, which are highly dependent on oil imports maintain caution, Iran threatened that it will not allow “a litre of oil” to pass through the sea route. Tehran said that the world should expect oil at $200/bbl.
While market frenzy came in with this statement, analysts have said that the surge to the $200/bbl mark is not likely to happen.
Hareesh V, Head of Commodity Research at Geojit Investments, said “A surge to $200 is improbable given diversified global supply capacity. However, if crude ever hit $200, it would trigger severe global inflation, spike fuel and transport costs, strain households, widen trade deficits, pressure currencies, and push import‑dependent economies toward recession.”
Conclusion
Most industry observers and analysts are in wait-and-watch mode. The impact on inflation is one of the most important factors to watch out for, from an Indian perspective.