Israel-Iran Tension May Spike Oil, LNG Prices Impact Indian Markets

Recent escalations in tensions between Israel and Iran are raising concerns regarding potential disruptions to India's imports of liquified natural gas and oil via the Strait of Hormuz. Iran has threatened to block this vital sea passage, potentially causing supply issues for nations like India, which rely heavily on imports from the UAE, Iraq, and Saudi Arabia. Experts warn that this situation could lead to market volatility in India.

The Strait of Hormuz is a narrow waterway between Iran and Oman, serving as a crucial route for global oil transportation. India imports 85% of its crude oil from the UAE, Saudi Arabia, and Iraq, and LNG from Qatar, with much of it passing through the strait. If obstructed, it could interfere with the daily shipment of 6.3 million barrels of oil from Saudi Arabia and substantial amounts from other nations.

While oil imports could be redirected through alternative routes, there are limited options for LNG imports. Experts predict significant increase in oil and LNG prices if the strait is closed. Crude oil prices, currently around $90 per barrel, could surge if tensions between Iran and Israel escalate further.

Despite ongoing de-escalation efforts, the situation remains uncertain. However, India has some buffer against rising oil prices due to its supply of Russian oil, which accounts for 30% of its total imports. This could help mitigate the impact on India's import bills. The energy market impact of this buffer is significant in stabilising India's economy amid geopolitical tensions.

The conflict between Israel and Iran, coupled with factors such as subdued quarterly earnings and selling by foreign institutional investors, is likely to add to the volatility in the Indian stock markets. Investors are closely monitoring the forthcoming meeting of the US Federal Reserve and the possibility of heightened conflict post the Passover festival in Israel. With earnings reports from global and Indian companies set for release next week, significant market reactions are expected.