If Middle east tension escalates, India's inflation, growth and BoP may see negative impact: Experts

New Delhi [India], April 16 : Iran's military actions against Israel over the weekend sent shockwaves through the oil markets. The Strait of Hormuz, a chokepoint for global oil transit, has become a focal point as concerns mount over potential disruptions to oil supplies.
With approximately 20 million barrels per day of crude oil and condensate passing through the Strait of Hormuz, equivalent to about a fifth of global consumption, any disturbance in this key maritime route reverberates across the world.
Of this volume, around 70 percent is destined for Asia, making the region particularly sensitive to any disruptions.
India, as one of the world's largest oil importers, remains particularly vulnerable to disruptions in the oil supply chain.
Ajay Bagga, a market expert, highlighted India's dependence on imported oil, which accounts for more than 80 percent of its annual requirements.
Any disruption or increase in crude oil prices could adversely affect India's balance of payments (BoP), fuel inflation, and dampen economic growth prospects.
Bagga said, "India is dependent on imported oil for more than 80 per cent of its annual requirements. Any disruption or increase in crude oil prices will have a negative impact on India's balance of payments, will increase inflation, and reduce economic growth. That remains a risk to India."
Shares of Indian oil marketing companies, including Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL), witnessed declines, dropping by 1.9 percent, 2.14 percent, and 1.8 percent, sequentially on Monday, reflecting concerns over potential supply disruptions and the impact on the country's economy.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, expressed cautious optimism regarding the Iran-Israel conflict, suggesting that the situation may stabilize, given indications of de-escalation.
However, he warned investors to remain vigilant due to the inherent uncertainty in such tense situations.
Vijaykumar said, "Signals from the crude market indicate that the Iran-Israel conflict is unlikely to escalate. President Biden has clearly indicated that he doesn't support Israeli retaliation. So, the situation may calm down. However, investors have to be guarded since the element of uncertainty is high during a tense situation like this."
Jateen Trivedi, VP Research Analyst at LKP Securities, emphasized the current neutrality in crude prices, attributing the lack of significant reaction to the absence of supply constraint signs from Iran.
He projected a downward range for crude prices, indicating potential selling pressure near 7125 in MCX.
Trivedi said, "Crude prices trended weak below 85USD in WTI as war tensions were seen neutral as of now between IRAN & Israel after weekend escalated tension were seen high which had last week kept prices high. As of now there is not a major reaction in Crude price on middle east war as there isn't any supply constraint signs from Iran. Range of Crude is seen lower towards 6900rs in MCX as selling is seen on rises near rupees 7125."
New York Mercantile Exchange (NYMEX) crude oil prices experienced fluctuations, amidst heightened tensions because of military actions by Iran against Israel.
The delicate balance in the region has kept traders on edge, with concerns looming over potential disruptions to oil supplies.
ICICI Direct stated, "NYMEX Crude oil is expected to trade higher amid heightened tension in the Middle East. Recent attack by Iran on Israel has caused a major threat to supply from the Middle east nations. Meanwhile, focus will shift on the retaliatory action from Israel which could lead to further escalation in the region and disrupt oil supplies from the region."
With crude prices responding to geo-political developments in the region, the Multi Commodity Exchange (MCX) crude oil market has been navigating through a landscape of uncertainty.
ICICI Direct adds, "Meanwhile, strong dollar and expectation of higher for longer interest rates by the Fed would limit any major upside in oil prices. MCX Crude oil is likely to rise back towards 7250 levels as long as it trades above 7000 levels. Only close below 7000, it would turn weaker."
As global attention remains focused on the Middle East, the response of Israel and the United States will shape the trajectory of oil markets in the days to come.
Analysts warn of the possibility of oil prices surpassing the USD 100 mark if tensions escalate further, underscoring the fragility of the global oil supply chain amidst geopolitical instability.
In response to Iran's military actions, oil prices experienced a downward correction on Monday, albeit after soaring close to a six-month high the previous week.
Brent futures for June delivery slipped by 0.5 percent to USD 89.95 per barrel, while West Texas Intermediate (WTI) futures for May delivery saw a decrease of 0.6 percent, settling at USD 85.14 per barrel.