Could Oil Prices Skyrocket Due to US Strikes on Iran?

New Delhi, June 22 (NationPress) The US airstrikes on Iran’s nuclear facilities have intensified the ongoing Israel-Iran conflict, escalating geopolitical tensions that may result in a significant rise in global oil prices. This month alone, oil prices have already surged by nearly 20 percent.

Currently, the benchmark Brent crude futures are trading around $77 per barrel. The market is bracing for another potential price increase following the US's involvement in the Middle Eastern conflict.

An expanded conflict in the Middle East could disrupt oil supplies from nations such as Saudi Arabia, Iraq, Kuwait, and the UAE, likely causing a sharp rise in prices. Additionally, shipping routes may be affected, as Houthi rebels have warned of resuming attacks on vessels if the US continues its offensive against Iran.

India, which imports about 85 percent of its crude oil needs, could face a higher oil import bill, escalating inflation rates, and potentially stunting economic growth. This could also result in a depreciation of the rupee against the US dollar.

According to an Emkay Global report, Iran produces approximately 3.3 million barrels per day (mbpd), which is about 3 percent of global production, and exports around 1.5 mbpd, with China being the primary importer (80 percent), followed by Turkey. Iran is strategically located at the northern entrance of the Strait of Hormuz, a vital route through which over 20 mbpd of oil trade passes from countries including Saudi Arabia and the UAE. Iran has historically threatened to block this passage.

However, with OPEC+ announcing an unexpected increase in production for July, the fundamental supply of oil in the markets remains stable, allowing for potential cuts in Iranian supply, the Emkay report indicates.

Regarding the potential impact on the Indian economy, the report states: “Currently, we are not altering our forecasts and anticipate that CPI inflation will remain below the RBI's estimate of 3.7 percent, averaging around 3.3-3.4 percent in FY26. We observe that for every $10 per barrel increase in oil prices, there is an annualized inflation increment of 35 basis points.”

Emkay Global projects that FY26 CAD/GDP will remain at 0.8 percent at Brent priced at $70 per barrel, with every $10 per barrel increase posing a potential upside risk of 0.4-0.5 percent, all else being equal.

“Our energy team continues to maintain a favorable outlook on India's oil market companies due to robust marketing margins and stable core GRMs (gross refining margins), projecting Brent prices to hold steady around $75 per barrel for the rest of the year,” the report concluded.