Iran launched a series of attacks on Israel on Tuesday night, raising the threat of a large-scale war in the Middle East. Earlier, Hassan Nasrallah, the leader of the Iran-backed Lebanese group Hezbollah, was killed in an Israeli attack. Now, in retaliation, Iran has attacked Israel. Crude oil prices have risen sharply as oil-producing Iran becomes embroiled in the war.
Oil prices rose about 3% on Tuesday. Global Brent crude oil closed at US$73.56 per barrel, up US$1.86, or 2.6%; US West Texas Intermediate crude oil (WTI) closed at US$69.83 per barrel, up US$1.66, or 2.4%. On Tuesday, both crude oil benchmarks rose more than 5%.
Oil prices rise after fall
Brent crude fell about 3% last week and WTI fell about 5%, but prices rose on Monday amid the prospect of a conflict between Israel and Iran. Oil prices rose on concerns about tensions between Iran’s proxy Hezbollah and Israel stepping up attacks on Yemen’s Houthi rebels. Iran is one of the largest oil producers and a major member of the Organization of the Petroleum Exporting Countries (OPEC).
Priyanka Sachdeva, senior market analyst at Philip Nova, told Reuters that the market is worried that the crisis in the Middle East will intensify, which may reduce supply in major producing areas.
IG Markets market analyst Tony Sycamore said oil prices will fluctuate based on supply and demand amid Israeli attacks on Hezbollah.
“Israel will not hesitate to attack Iran directly,” independent political risk strategist Clay Siegel told Reuters. It is likely to target Iran’s oil assets.
Siegel said that if Israel attacks Iran’s oil production and export facilities, it will cause huge losses, which may exceed 1 million barrels per day.
What impact will it have on India?
The Indian economy depends heavily on crude oil. India is the world’s third largest crude oil consumer and relies on imports for more than 85% of its oil needs. In this case, the impact of rising oil prices on India can also be seen.
India also purchases part of its crude oil needs from Iran. However, India’s oil purchases from Iran have declined due to US sanctions on Iran. Although India purchased over $4 billion worth of crude oil from Iran in 2014-15, this dropped to just $1.4 billion in 2019-20.
Sugandha Sachdeva, founder of SS WealthStreet, emphasized that geopolitical tensions in the Middle East will have a significant impact on global oil prices. Especially considering that the Strait of Hormuz is an important trade route. 30% of the world’s oil trade passes through this route.
Sakhdeva warned that any blockage in the Strait of Hormuz could severely impact global oil supplies and freight, further adding to logistical challenges. He said that crude oil prices may rise from the current US$71 per barrel to US$85-87 per barrel, which is a concern for India.
Rising crude oil prices could wreak havoc on India’s budget and hurt the economy. This may also put pressure on the rupee and negatively impact foreign capital inflows.
India not only buys crude oil from Iran but also dry fruits, chemicals and glassware. An Iranian attack on Israel could impact supply chains, which would also affect trade.
