The Indian oil and gas sector is bracing for a significant impact as geopolitical tensions in West Asia, specifically the US-Iran conflict, threaten global supply chains. According to a recent report by Nomura, the disruption in the Strait of Hormuz, a critical narrow passage for 20% of the world’s oil and 50% of India’s imports, is set to create a landscape of ‘sharp earnings volatility’ across the oil & gas industry.
Nomura identified upstream oil companies and a few refining firms as the primary beneficiaries of the crisis, while oil marketing and city gas distribution companies face substantial headwinds.
Upstream oil companies
Nomura sees these companies as ‘clear winners’ due to higher average selling prices (ASPs) resulting from the spike in crude oil prices. However, the brokerage house cautioned that the Indian government could impose windfall taxes if prices rise excessively. Among them, Oil India is preferred as a play on rising refining margins through its investments in the Numaligarh Refinery and Indian Oil Corporation (IOCL).
Oil refiners
Reliance Industries is expected to benefit from a potential spike in Gross Refining Margins (GRMs), particularly if attacks on West Asia refining assets intensify.
Oil Marketing Companies (OMCs)
Companies like IOCL, Bharat Petroleum Corporation, and HPCL are at high risk. Nomura estimated that OMCs may start making losses if Brent crude exceeds $85 per barrel, as retail prices remain stable while input costs soar.
Gas and CGDs
City Gas Distribution companies face significant EBITDA hits (ranging from 15% to 27%) for every 10% increase in imported gas costs. GAIL (India) is considered a defensive pick due to its fixed transmission tariffs, while Petronet LNG may suffer from lower volumes as higher prices dampen demand. Notably, Gujarat Gas might see a silver lining as industrial customers switch from disrupted LPG supplies to natural gas.
What’s happening in West Asia? A Crisis at the Strait of Hormuz
The Strait of Hormuz has become a major shipping bottleneck. Major shipping firms, including Maersk, have suspended all cargo through the route after reports of cargo ships being targeted and damaged by Iranian forces. Consequently, insurance premiums have skyrocketed, with some insurers withdrawing coverage entirely.
Global energy benchmarks are reacting sharply. Spot prices for TTF and JKM gas have surged by 50% and 40%, respectively. While OPEC+ recently decided to increase output by 206kbpd starting in April, Nomura suggested this may not provide immediate relief from supply shocks but could lead to a surplus later in the year once tensions abate.
As the situation evolves, the Indian energy sector remains highly sensitive to any further escalation that could permanently alter shipping routes or damage core production infrastructure in the Gulf.