Israel-Iran War Lifts Oil Prices Above $75: How Will Costlier Crude Impact Indians?
Brent crude has risen above $75 per barrel amid escalating tensions in the Middle East that might disrupt crude oil flows from the region.
Brent crude futures were up $1.52, or 1.52%, to $75.4 a barrel at 0310 IST. US West Texas Intermediate crude futures were up $1.10, or 1.57%, to $71.20.
Rising for the third consecutive day, Brent crude on Thursday rose above $75 per barrel amid escalating tensions in the Middle East that might disrupt crude oil flows from the region. Benchmark Brent crude was trading at $75.4 per barrel, an over 5 per cent jump in the past five days.
Brent crude futures were up $1.52, or 1.52%, to $75.4 a barrel at 1510 IST. US West Texas Intermediate crude futures were up $1.10, or 1.57%, to $71.20.
“Crude oil has exhibited significant volatility, surging over 5 per cent in the international market over the past two days due to escalating tensions in the Middle East. Iran’s missile attacks on Israel on Tuesday intensified regional concerns, driving oil prices higher. Israel’s threat of retaliation, particularly if it targets Iran’s oil infrastructure, could further support rising prices. Meanwhile, OPEC+ concluded its meetings this week, reaffirming their plan to increase output from December. The US crude oil inventories rose once again, according to the U.S. EIA report released on Wednesday,” said Rahul Kalantri, vice-president (commodities) of Mehta Equities.
Stocks increased by 3.9 million barrels, contrary to expectations of a 1.5 million barrel decline, which has tempered crude oil gains.
On Tuesday evening, Iran attacked Israel with hypersonic and ballstic missiles hitting over 180 of them, which targetted especially capital Tel Aviv. It came after Israel killed various Hizbollah leaders. Hamas chief Ismail Haniya was also killed in Iran.
According to The New York Times citing officials, Israel might target oil production sites and military bases in India. Damaging oil refineries could send global oil markets into turmoil a month before the US elections.
On Thursday, an Israeli strike overnight in the Lebanese capital Beirut killed seven health and rescue workers, Associated Press reported. The airstrike in the residential Bashoura district targeted an apartment in a multi-story building that houses an office of the Health Society, a group of civilian first responders affiliated to Hezbollah. It was the closest strike to the central downtown district of Beirut, where the United Nations and government offices are located.
The strike came as Israel was pursuing a ground incursion into Lebanon against Hezbollah, while also conducting strikes in Gaza that killed dozens, including children. The Israeli military said eight soldiers have died in the conflict in southern Lebanon.
The iCOMDEX Crude Oil index of the Multi Commodity Exchange (MCX) showed oil prices rose to Rs 7,749.35 a barrel, which is a 1.32 per cent or Rs 101.11 gain.
How Will Costlier Crude Impact Indians?
Forex Reserves Pressure: India, which imports around 85 per cent of its crude oil needs, will have to shell out more dollars to buy crude oil. The costlier the crude oil, the higher the pressure on forex reserves.
Impact on Current Account Deficit: India imports most of its oil needs. Increased crude prices can widen the current account deficit, negatively impacting the country’s balance of payments.
Petrol, Diesel Prices: When the crude oil prices hit as low as $69 per barrel, there were talks going on in India about cutting petrol and diesel prices. However, after the Middle East tensions, the talks will be halted amid fears of crude oil price spikes in future.
Higher Inflation: If the crude oil prices continue to rise continuously due to the Israel-Iran tensions, it can lead to inflation across multiple sectors, increasing the cost of living for ordinary citizens.
Interest Rates: As the rate cut cycle has started globally with the US Fed recently cutting the key repo rate by a big 50 basis points (bps), the Reserve Bank of India (RBI) is also expected to follow suit soon. The increase in crude oil prices will lead the RBI to take more time to cut rates.
Government Subsidy Burden: The government might have to increase subsidies to cushion the impact of rising prices on cooking gas and other essentials, adding fiscal pressure.
