The US has attacked Iran’s nuclear facilities on Sunday, June 22, putting an end to days of speculation on whether the Donald Trump-led administration will join Israel or not in the 10-day long hostilities.Attacks on Fordow, Natanz, and Esfahan have raised bet that oil prices will surge again on Monday, after a week of sharp swings. Iran accounts for one-third of the global oil output and is the third largest member of the Organisation of Petroleum Exporting Countries (OPEC+).
Brent Crude futures were up 11% in the week gone by, surging to as high as $80 per barrel, before cooling off and surging again, as Trump continued to maintain suspense on whether or not the US will join the conflict. Hopes of a ceasefire also capped further gains as experts believe that oil has no structural reason to sustain at such elevated levels due to lack of demand and ample supply from the OPEC+ cartel.
OPEC+ will meet again on July 5 to consider another planned output hike in August after raising supplies in both June and July by 4.11 million barrels per day.“Much depends on how Iran responds in the coming hours and days — but this could set us on a path toward $100 oil, if Iran responds as they have previously threatened to,” said Saul Kavonic, an energy analyst at MST Marquee.A surge in crude oil prices is a negative for India’s oil marketing companies, HPCL, BPCL, Indian Oil and its units, along with other sectors like Paints, Tyres and Aviation, who use crude as a key input material.
In an interaction with CNBC-TV18 on June 17, Santanu Sengupta of Goldman Sachs said that if crude oil prices rise to $75 per barrel, it will hurt the macroeconomy. A $10 per barrel increase in crude oil prices will add 30-40 basis points to the cost burden.Additionally, it will also add to India’s fiscal burden, although he believes that should e manageable.Samiran Chakraborty, Chief India Economist at Citi also highlighted that in case supply chain disruption could have a negative impact on inflation. However, compared to Russia, Iran’s exports to the world are much lower and that India still has some more room to handle slightly higher crude prices.On the flip side, any signs of de-escalation could be a negative for oil prices has history is proof that such supply disruptions have not lasted long. The 2019 attack on Saudi Aramco’s facilities in Abqaiq had knocked out 7% of the global oil supply, but oil prices could not sustain at those higher levels as supply was restored back in a few weeks.“This is the big one,” said John Kilduff, a partner at Again Capital, pointing to a $8-a-barrel risk premium as plausible. “The market default on this development is higher. How high depends on Iran’s response — or the realistic prospects of a meaningful response, which may not be there.”(With Inputs From Agencies.)Also Read: Israel-Iran War Live updates: All US planes now outside of Iranian airspace, says Trump
