Iran Conflict Drives Brent Oil Prices to $100, Raising Concerns Among Oil Companies
Global benchmark Brent crude surpassed the $100-per-barrel mark on Thursday, reaching $100.71 for September contracts. This increase, nearly 7% in a single day, is attributed to escalating tensions between the U.S. and Iran, which have disrupted shipments through the Strait of Hormuz. Additionally, Houthi rebels, backed by Tehran, are targeting shipping routes through the Bab el-Mandeb Strait.
The Indian basket of crude oil also saw a significant rise, climbing to $93.19 per barrel on Wednesday. This represents a nearly 40% increase from the July 2 price of $67 per barrel, when prospects for a peace deal between the U.S. and Iran seemed promising. A senior executive from an oil marketing company indicated that if this trend continues, oil retailers may face financial challenges in the second and third quarters.
Impact on Oil Retailer
Oil retailers had recently broken even after experiencing under-recoveries on petrol, diesel, and domestic LPG during the conflict. However, they are still incurring losses on cooking gas cylinders, which are expected to increase. In the June quarter, state-owned HPCL and BPCL reported combined losses exceeding Rs 14,000 crore, with LPG under-recoveries alone amounting to over Rs 7,000 crore.
During an analysts’ call, BPCL’s director of finance, VRK Gupta, noted that while there was a brief period of stability in June, the latest geopolitical developments have quickly altered the operational landscape. Concerns are heightened by the lack of discounts on Russian crude, which, despite providing supply stability, does not alleviate pricing pressures. The disruption of shipping through the Bab el-Mandeb Strait poses a new challenge for energy security, threatening crude supplies from Saudi Arabia and Russia while increasing freight costs.
Saudi Arabia’s Role in Global Supply
Saudi Arabia has increasingly relied on its East-West Pipeline to transport crude to its Red Sea port of Yanbu, circumventing the Strait of Hormuz. A significant number of vessels carrying cargo to India and other Asian countries transit the Suez Canal before passing through the Red Sea and Bab el-Mandeb Strait.
Prashant Vasisht, senior vice-president at ICRA, stated that Saudi Arabia has recently become India’s third-largest crude oil supplier, following Russia and the UAE. The kingdom is supplying between 5.5 and 5.9 million barrels per day to global markets through its Red Sea ports. Vasisht warned that any threat to this supply could lead to inflationary pressures on global crude oil prices.
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