The US and Iran have agreed to a deal to end the conflict, with the agreement set to be signed in Switzerland on Friday, raising hopes of a reopening of the Strait of Hormuz and a revival of oil and gas flows from West Asia.
The prospect of a peace deal has already pushed Brent crude down to around $83 per barrel, while analysts expect Asian spot LNG prices to fall by up to 40% to $12-15 per MMBtu from the current $18-20 range, potentially delivering significant relief to India’s energy import bill, inflation, subsidy burden and industrial fuel costs.
The development is particularly significant for India, which imports more than 85% of its crude oil requirement and over 50% of its natural gas consumption. Nearly 20% of global oil and gas supplies move through the Strait of Hormuz, making any disruption a direct threat to India’s energy security and import costs. Analysts estimate that a $10 decline in crude oil prices can reduce India’s annual import bill by $13-15 billion.
According to Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA, a successful agreement would ease both crude and gas markets, although a complete return to pre-conflict conditions could take time.
“In case of a successful US-Iran deal and subsequent normalisation of the vessel traffic through the Strait of Hormuz, crude oil and natural prices would ease. However, beyond the immediate price action, crude prices could take six months to one year to normalize to pre-war levels given that almost 10-11 million barrels per day of production has been shut in West Asia besides which some facilities have suffered damages,” Vasisht said.
He added that any removal of sanctions on Iranian crude would be positive for India given its geographical proximity and historically favourable credit terms offered by Tehran.
The biggest and quickest gains, however, could emerge in the LNG market. According to Rajesh Kumar Mediratta, Managing Director and CEO, Indian Gas Exchange (IGX), restoration of LNG trade flows through Hormuz could significantly ease global gas market tightness.
“A successful US-Iran agreement and the restoration of normal LNG trade flows through the Strait of Hormuz could significantly ease global gas market tightness, potentially bringing Asian spot LNG prices down to the $12-15/MMBtu range from the current $18-20/MMBtu levels,” Mediratta said.
According to him, nearly 60% of India’s LNG imports come from Qatar and the UAE, a significant portion of which was disrupted when the conflict affected flows through Hormuz and took critical regional supply infrastructure offline. Indian buyers were subsequently forced into the spot market to secure replacement cargoes, pushing procurement costs sharply higher. LNG prices had surged above $25/MMBtu at the peak of the crisis and averaged $17-18/MMBtu during much of the disruption.
“For India, which imports over 50% of its total gas requirement, a stable supply corridor through the Strait of Hormuz is not just a market event. It is an energy security imperative,” Mediratta said.
Lower LNG prices would directly benefit city gas distributors, fertiliser producers, power generators and industrial consumers while reducing pressure on government subsidies and energy imports.
According to Madan Sabnavis, Chief Economist at Bank of Baroda, the agreement could also improve India’s fiscal and external balances.
“Fiscal breathing space will ensue if prices cool, especially of gas, as the fertilizer subsidy was expected to be a major challenge,” Sabnavis said.
He noted that lower crude prices could support the rupee and improve the current account deficit position, although retail fuel prices may not immediately decline given the losses currently being absorbed by oil marketing companies on diesel, LPG and aviation turbine fuel.
According to Claudio Galimberti, Chief Economist at Rystad Energy, the agreement represents the most workable outcome currently available for global energy markets.
“Every barrel previously constrained through the Strait represents inflationary pressure that would begin to unwind, at least at the margin,” Galimberti said.
However, he cautioned that market sentiment would likely improve faster than physical supplies.
“It will take time for production to ramp back up, for logistics to normalize, and for the risk premium embedded in crude prices to dissipate,” he said.