Iran crisis: Price volatility, macro impact seen on India
New Delhi:India is expected to face oil price volatility and broader macroeconomic effects from the escalating Iran crisis, analysts said, adding the country's oil supply chain does not yet face structural insecurity.
Rising tensions around the Strait of Hormuz - through which a significant share of India's crude and LNG imports transit - have already pushed Brent crude prices toward a seven-month high of USD 73 per barrel, adding a geopolitical risk premium to global energy markets and heightening inflation and current account pressures, even as physical supply disruption remains unlikely in the near term.
"In the current escalation scenario, the initial impact is likely to be price-driven rather than volume-driven. A geopolitical risk premium would lift Brent prices, alongside increases in freight rates and war-risk insurance costs," said Sumit Ritolia, Lead Research Analyst, Refining and Modelling at commodity market analytic firm Kpler.
Even in the absence of physical shortages, landed crude costs for Indian refiners would move higher. For India, this translates into higher import bills and potential macro pressures, while physical availability may remain intact in the near term, he said.
Aditi Nayar, Chief Economist at ICRA, said the situation in West Asia is unfolding, and the extent to which it prolongs and widens would have a bearing on India's macros, including things like the impact of fuel prices on inflation and the twin deficits, as well as remittances.
