Oil prices up over 2% amid ongoing conflict in West Asia

Global crude oil prices rose over 2% on Thursday amid escalating tensions in West Asia, supply constraints and fears of a prolonged conflict disrupting critical energy routes.

Around 7:15 AM, the April contract of the benchmark crude on the Intercontinental Exchange was trading at $83.26 per barrel, higher by 2.43% from its previous close. Similarly, the April contract of West Texas Intermediate on the NYMEX rose 2.63% to $76.63 per barrel.

A potential disruption at the Strait of Hormuz, a chokepoint for over a quarter of global oil trade, has reignited supply shock fears, lifting crude prices and heightening risks for import-dependent economies like India.

Escalation risk

A Kotak Securities report on Wednesday said that the sharp escalation in tensions between the US and Israel on one side and Iran on the other, coupled with reported damage to critical regional energy infrastructure, has resulted in one of the most severe supply disruptions in recent history.

The Islamic Revolutionary Guard Corps (IRGC) has announced the closure of the Strait of Hormuz (SoH), warning that any vessel attempting to transit the waterway would be targeted. According to media reports, on Wednesday, a container ship transiting the Strait of Hormuz was struck by a projectile, damaging the vessel and forcing the crew to abandon ship.

“This is a material global risk event. Approximately 20 million barrels per day (mb/d) of crude oil and 86 million tonnes per annum (mtpa) of LNG pass through the SoH, representing 27% of global oil trade and 20% of global LNG trade,” the report said.

"While a prolonged shutdown appears unlikely, even a disruption lasting a few weeks could cause significant market dislocation. Early signs of stress are already visible. Qatar, one of the world’s largest LNG exporters, has reportedly shut its LNG plants, exacerbating concerns over supply continuity," it added.

India exposure

The closure and the eventual impact on supplies and prices gain significance for India, which imports around 90% of its crude oil requirements.

A persistent increase in oil prices would impact India’s import bill, current account deficit and inflation over the long run. An increase of $1 per barrel of oil for an entire year boosts its import bill by around ₹16,000 crore.

Further, India faces elevated exposure to this disruption, with an estimated 50–55% of its crude oil and LNG imports transiting the Strait of Hormuz. Strategic petroleum reserves cover only 8–9 days of oil demand, and there are no comparable strategic reserves for natural gas.

"If the disruption persists beyond the very short term, supply-side stress will intensify rapidly. We expect gas supplies to be rationed in the near term," the Kotak report said.

Mint earlier reported that the union government is keeping a close eye on its fuel and oil stocks, as disruption in the Strait of Hormuz throws global oil supply chains into disarray. State-run refiners have crude oil stocks which will last around 25 days, plus petrol and diesel for another 25 days. India also has around 25 days of cooking gas stock, and liquified natural gas stock of up to 21 days.