
Oil prices are surging as the Iran-Israel conflict takes a turn for the worse, with the two nations continuing to trade heavy missiles on Thursday and Iran defying US President Donald Trump's call for surrender.
As tensions escalate in the Middle East, the average price of the Indian crude oil basket stood at $75.91 per barrel at last count, according to the Petroleum Planning & Analysis Cell. The crude basket was priced at $69.08 per barrel on June 12, but spiked to $73.12 per barrel on June 13 — the day Israel's surprise attacks targeted dozens of Iranian sites. The same basket was priced at $64.04 per barrel in May and $67.73 per barrel in April.
The Indian crude oil basket represents a derived mix comprising Sour grade (Oman & Dubai average) and Sweet grade (Brent Dated) crude oils, processed in Indian refineries in a 78.50:21.50 ratio.
Analysts warn that crude oil prices could hit the $100-per-barrel mark if the conflict escalates. A resolution to the war could ease oil prices below the $70-per-barrel level, they noted, as the market is currently well-supplied.
"The Israel-Iran tensions could cause oil prices to spike to $100 per barrel due to a potential closure of the Strait of Hormuz, which could disrupt 15 percent of global oil supply. Even if the market perceives only a 30 percent risk of closure, that could still be enough to drive prices toward $85 per barrel in the near term," Nuvama warned.
According to reports, Iranian missiles hit the cities of Tel Aviv, Ramat Gan, Beersheba, and Holon today, causing extensive damage. Israel's stock exchange and Soroka Hospital in southern Israel were also struck. On the other hand, Israeli missiles targeted a key Iranian nuclear site. Market observers tracking the oil sector say there is uncertainty about potential U.S. military action against Iran.
Following these developments, Brent crude futures for August delivery were trading at $77.02 per barrel, up 0.42 percent. WTI futures were trading at $73.75, up 0.34 percent.
Iran’s crude oil production is around 3.3 mbd, of which it exports 1.8-2.0 mbd. Emkay Global noted that Iran has partially shut down its South Pars gas field following Israeli strikes. A major fuel depot and gas refinery were also affected; however, the impact on supply appears limited to domestic markets for now.
ICRA noted that crude oil imports from Iraq, Saudi Arabia, Kuwait and the UAE that pass-through the Strait of Hormuz account for 45 50 per cent of total crude imports by India. About 60 per cent of the natural gas imports by India pass through the Strait of Hormuz.
Kotak Institutional Equities stated that the Iran-Israel conflict will affect the Indian economy through higher oil prices, while its impact on the market will be felt through reduced earnings and/or lower valuations due to a higher cost of capital.
Kotak believes India’s economy will not be significantly affected by a $10–20 per barrel increase in oil prices, given the scale of the economy. Nonetheless, elevated oil prices could weaken one of the central arguments for high Indian market valuations, it said.
"The current Iran-Israel conflict could easily escalate into (1) another proxy war between economic and military superpowers and (2) prolonged disruption to crude oil supply, including interruptions to oil and gas tanker movements in the critical Strait of Hormuz," it said.
For oil retailers, every $1 a barrel rise in crude price results in OMCs' auto-fuel gross marketing margin declining by Re 0.5 per litre. Every rise/decline in auto-fuel gross marketing margin by Re 1 per litre results in increase/decrease in OMCs book value by 0.2-0.5 per cent per month, JM Financial noted.
"Oil moving toward $80 a barrel will drive upstream earnings and valuations; every USD5/bbl increase would raise ONGC's standalone EPS/TP by 12 per cent each and Oil India’s by 9 per cent/12 per cent. A decline in Brent price would support OMCs; Brent at $70/barrel would also mean a lesser risk of retail price cuts in petrol and diesel. For OMCs, we see no downgrade risk up to $75/barrel in 9MFY26. LPG subsidy, if paid, can lead to upgrades," Emkay said.
At these elevated crude oil prices, while the profitability of upstream players will remain healthy and their capex plans will remain intact, the marketing margins of downstream players will be impacted along with the expansion of LPG under-recoveries, ICRA said.