The ongoing geopolitical crisis in West Asia, and further escalation in the Israel-Iran-Lebanon conflict is likely to impact India soon. Industry insiders said it is certain that crude oil and Liquefied Natural Gas (LNG) imports will get dearer since the supply could hit both the international and domestic markets.
India is the world’s third-largest consumer of crude oil and depends on imports to meet over 85 per cent of its requirement. “Our economy is too sensitive to oil price volatility and it directly affects inflation, trade imbalance, foreign exchange reserves, and an acute fluctuation in rupee valuation. While the situation is precarious and both the government as well as business stakeholders are keeping a watch on the hourly crisis in West Asia, we are evaluating the current global oil flows as international oil prices could see an increase anytime. For India it’s a festive season and it heavily impacts us,” an industry source explained, on conditions of anonymity.
Prime Minister Narendra Modi on Monday spoke to his Israeli counterpart Benjamin Netanyahu over the ongoing conflict in the Middle East. Modi expressed his concerns about the escalating tensions in West Asia, emphasising that “terrorism has no place in our world.”
According to media reports, crude oil futures on Tuesday declined 0.5 per cent to Rs 5,739 per barrel as participants trimmed their positions on low demand. On the Multi Commodity Exchange, crude oil for October delivery fell Rs 3 or 0.5 per cent to Rs 5,739 per barrel with a business volume of 17,697 lots.
Globally, West Texas Intermediate crude was trading 0.18 per cent higher at USD 68.29 per barrel, while Brent crude was trading 0.17 per cent up at USD 71.82 per barrel in New York.
Analysts said Oil and LNG prices are expected to increase significantly if Iran decides to block the Strait of Hormuz, through which countries such as India import crude oil from Saudi Arabia, Iraq and UAE, resulting in a surge in inflation, due to the Iran-Israel conflict.
India, which relies on overseas suppliers for over 85% of its crude oil requirements, imports oil from Saudi, Iraq and UAE as well as liquefied natural gas (LNG) from Qatar through the Strait of Hormuz. The Strait of Hormuz is a narrow sea passage between Oman and Iran.
It is approximately 40 km wide at the narrowest point, with two kilometres of navigable channels for incoming and outgoing ships. It serves as the primary route for the export of crude oil by Saudi Arabia (6.3 million barrels per day), the UAE, Kuwait, Qatar, Iraq (3.3 million bpd) and Iran (1.3 million bpd).
According to international news agencies, the Israeli military on Tuesday warned people to evacuate nearly two dozen Lebanese border communities hours after announcing the start of “limited” ground operations against Hezbollah. The militant group denied Israeli troops had entered Lebanon.
Hezbollah and Hamas are close allies backed by Iran, and each escalation over the past year has raised fears of a wider war in the Middle East that could draw in Iran and the United States, which has rushed military assets to the region in support of Israel.
Israel advised people to evacuate to the north of the Awali River, some 60 kilometres from the border and much farther than the Litani River, which marks the northern edge of a UN-declared zone that was intended to serve as a buffer between Israel and Hezbollah after their 2006 war. Hezbollah vowed Monday to keep fighting even after its recent losses.
European countries have begun pulling their diplomats and citizens out of Lebanon. A British government-chartered flight is due to leave Beirut on Wednesday to evacuate UK nationals. The UK has also sent 700 troops to a base in the nearby island nation of Cyprus to prepare for a potential evacuation of the estimated 5,000 British citizens in Lebanon.
