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Business News/ Markets / Commodities/  Crude oil prices can hit $100 a barrel if Iran-Israel tensions escalate, say experts
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Crude oil prices can hit $100 a barrel if Iran-Israel tensions escalate, say experts

Global markets including India sank in trade today on the back of escalating Middle-East tensions. While the volatility in the markets is likely to be short-lived, as per experts, the rising tensions can, however, lead to a surge in crude oil prices.

While the volatility in the markets is likely to be short-lived, as per experts, the rising tensions can, however, lead to a surge in crude oil prices. (AP)Premium
While the volatility in the markets is likely to be short-lived, as per experts, the rising tensions can, however, lead to a surge in crude oil prices. (AP)

With the tensions in the Middle East escalating, experts believe that crude oil prices can hit $100 per barrel in the near future if tensions increase.

However, in early deals today (April 15), oil prices experienced a decline at the start of trading in Asia, as market players reduced risk premiums following Iran's attack in retaliation on Israel over the weekend. Brent futures for June delivery dropped by 24 cents to $90.21 a barrel, while West Texas Intermediate (WTI) futures for May delivery fell by 38 cents to $85.28.

Read here: 5 biggest concerns around Iran-Israel tensions that could impact Indian market

Iran's launch of over 300 drones and missiles against military targets in Israel has escalated tensions in the Middle East. The attack was reportedly in response to a suspected Israeli strike on Iran’s consulate in Syria on April 1. The Islamic Revolutionary Guard Corps (IRGC) confirmed the attack, stating it was aimed at specific targets. With Israel likely to retaliate against Iran, the situation remains highly volatile. However, US President Joe Biden cautioned Prime Minister Benjamin Netanyahu that the US would not participate in a retaliatory action against Iran, as reported by Reuters.

Overall, global markets including India sank in trade today on the back of the escalating tensions. While the volatility in the markets is likely to be short-lived, as per experts, the rising tensions can, however, lead to a surge in crude oil prices. Some experts predict it can hit even $100/barrel.

Read here: Gold price in an unshakeable bull market, says Goldman Sachs; raises target

"As Israel and Iran's geopolitical tensions continue to escalate Following Iran's strike on Israel, the Indian stock market might continue to be volatile. A confrontation between Iran and Israel might drive up the price of oil to more than $100 per barrel and cause panic selling and volatility in the stock market. Potential for full-blown Crude oil prices are almost at six-month highs as a result of the Israel-Iran confrontation. In order to preserve market stability, OPEC extended voluntary production curbs of 2.2 million barrels per day," said Pravesh Gour, Senior Technical Analyst at Swastika Investmart.

Meanwhile, Manoranjan Sharma, Chief Economist - Informerics Ratings, also has a similar forecast.

According to Sharma, with a crude oil output of almost 3 million barrels per day (mb/d) i.e., about 3 percent of the global production, Iran is a major oil producer and exporter and more importantly, 20 percent of the world's crude oil supply passes through the Hormuz Strait (60 percent of Indian crude supply is accounted for from the Hormuz Strait), the crude oil prices per barrel per day could rise from the present level of $91 (last month the Indian crude oil basket was under $85) to well over $100.

Read here: Why is India stock market down today? Explained with 5 reasons

Sharma further highlighted that India’s strategically time-tested relationship with both Iran and Israel is fraught with difficulties on the policy and operational front. Israel has long been a trusted defence and security partner. Iran is a major crude oil supplier and has shared concerns about terrorism, the Afghanistan landscape, and the geo-strategically significant Chabahar port.

"In the case of the Indian economy, this surge in oil prices would negatively impact the triple deficits of the trade deficit, current account and fiscal deficit. Since apart from macroeconomic fundamentals and the growth prospects of the firm and the industry, the capital market is also sentiment-driven, this war could negatively impact the BSE and NIFTY levels. But contrary to popular perception, extensive pessimism is unwarranted. It would be inappropriate not to factor in the strength and resilience of the Indian economy for a comprehensive assessment and perspective," he explained.

Swarnendu Bhushan, Co-Head of Research at Prabhudas Lilladher, also said, “Iran produces 3.2mnbopd of crude oil and also has a significant control on Strait of Hormuz which accounts for 30 percent of oil transit and 70 percent of oil shipment to Asia. Any escalation that may impact the oil production of Iran or affect the oil transit through the Strait can result in a sharp spike in oil prices. This would affect oil marketing companies negatively as they may not be able to take commensurate price hikes. For upstream companies, realization is managed through windfall taxes which may rise commensurately, and hence have no impact on upstream companies."

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 15 Apr 2024, 05:30 PM IST
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