The ongoing conflict across Middle East is not just a mere news headlines, it is directly impacting our everyday life. From fuel prices to household expenses, the ripple effect is everywhere. The sharp uptick in crude oil and LNG prices are no doubt one of the most telling impact. For investors, the big question now is – what happens next if the war suddenly ends?
The international brokerage house, CLSA, noted in its report that several Indian oil and gas stocks are at the centre of this shifting landscape. Stocks like Oil and Natural Gas Corporation (ONGC), Oil India, and Reliance Industries are expected to react differently compared to oil marketing companies such as Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation.
Gas-focused companies like GAIL (India), Petronet LNG, and Gujarat Gas are also in focus as the situation evolves.
A sudden relief rally if tension ease
According to the brokerage report, one of the biggest triggers for global markets would be any easing of tension in the Middle East, especially if shipping routes become accessible again. The Strait of Hormuz, a key route for global energy supplies, has remained critical during the conflict.
“Any news on opening-up of the Strait of Hormuz may drive a reflex pullback in crude oil and LNG prices and recovery in Indian downstream oil & gas stocks,” the report noted.
The report further pointed out that such a move could trigger a sharp rebound in beaten-down stocks. “These may see big pullbacks as an immediate reaction to any notable de-escalation,” it added, referring to crude oil and liquefied natural gas prices.
This reaction could happen quickly. According to the brokerage report, market movements may play out “within a few hours or with a big gap move.”
The next phase: What happens after the war ends
While the immediate reaction could be a relief rally, CLSA believes the bigger shift lies beyond the end of the conflict. According to the brokerage report, the war may have already changed the long-term balance between supply and demand in global energy markets.
“We believe that the war has fundamentally changed the demand-supply equation for the next few quarters,” the report said. This means that even if prices fall initially, they may not stay low for long.
On the supply side, restarting production in key oil-producing regions may take time. There are also risks that some production capacity may not fully recover. On the demand side, countries are likely to focus more on energy security, which could increase demand for both crude oil and liquefied natural gas.
The report also pointed out that expectations of oversupply in the LNG market may now be delayed. “Likely delay in this new capacity may delay this over-supply argument to 2027,” it noted, indicating tighter supply conditions for longer than earlier expected.
Winners and losers in the new energy cycle
According to the CLSA report, the post-war environment could create a different set of winners and losers within the sector.
“Post-war crude and LNG prices could settle at a premium of 10-20% vs. pre-war levels,” the report stated.
In such a scenario, upstream companies those involved in exploration and production like Oil and Natural Gas Corporation and Oil India could benefit more.
On the other hand, oil marketing companies such as Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation may face pressure on margins if crude prices remain elevated.
The report also highlighted that gas-related companies may see reduced investor interest in the near term. However, certain segments like residential piped natural gas could still offer some opportunities.
What are the key factors investor need to watch
The oil and gas sector is now closely tied to global events, making it more unpredictable than usual.
According to the brokerage report, while a temporary relief rally is possible if tension ease, the longer-term outlook depends on how supply chains recover and how demand evolves.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.