Israel-Hamas war: Sell OMC shares; prefer Cyient DLM, says InCred Equities

InCred Equities on Monday said if Iran is attacked due to its alleged links with Hamas, it would trigger energy crisis. In its latest note, the brokerage said an attack on Iran by Israel or vice versa may lead to disruption of trade in Strait of Hormuz, noting that 35 per cent of the global LNG trade and almost 21 per cent of the global oil passes through the narrow strip of sea.

It said that the rising export from Iran was responsible for extra tanker requirement and that to some extent Iran was balancing the crude oil market. If Iran is attacked, then crude flow can stop, the brokerage said.

The Strait of Hormuz is a narrow waterway between Iran and Oman. It is the only outlet for oil and gas exports from the Persian Gulf. This makes it a strategically important chokepoint for global energy markets, InCred noted adding that 1. it is among world's most important oil chokepoints, as approximately 21 million barrels of oil per day pass through the strait, or about 21 per cent of global petroleum liquids consumption.

"Remember strait of Hormuz is a pass way for Saudi crude as well so blocking it will not be an easy for Iran without taking the wrath of Saudi. It will be catch-22 for Saudi though, if they attack Iran then will be seen siding Israel. So, most likely backdoor conversations will lead to avoidance of this Armageddon scenario," InCred Equities said.

InCred Equities said, in any case, crude oil would be pricing in the Iran attack probability and would rise. The brokerage has a 'SELL' rating on oil marketing companies (OMCs) namely BPCL, HPCL and IOC. The brokerage prefers EMS companies such as like Cyient DML as Israel will spend more on defence and Cyient DLM is direct supplier multiple Israeli defence companies

"Hezbollah and Hamas have direct support from Iran. Although Israel has not blamed Iran for the attack yet however we all know who the backers of Hamas and Hezbollah are! Israel can’t attack Iran now; it is too caught up in Gaza and northern borders. But seeing the destruction of Gaza, Iran can attack Israel and call for support from all other Arab nations. (don’t forget Saddam’s tactics of using SCUD missiles against Israel in 1991 Gulf war), InCred said.

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