How the Escalating Conflict in West Asia is Impacting Global Oil Prices
Surge in Crude Oil Prices Amidst Geopolitical Tensions
New Delhi: On Monday, global crude oil prices experienced a significant increase of over 7% due to escalating tensions in West Asia, following military actions by the US and Israel against Iran.
Brent crude futures reached $82.37, marking the highest level since January 2025, with a notable rise of 7.60% to $78.41 per barrel. Meanwhile, US West Texas Intermediate (WTI) crude futures also saw a 7.19% increase, climbing to $71.86.
Reports indicate that Iran has halted navigation through the vital Strait of Hormuz, prompting governments and refiners to reevaluate their oil reserves.
In response to the ongoing conflict, OPEC has decided to increase oil production next month, with key members like Saudi Arabia and Russia planning to add 206,000 barrels per day.
Experts suggest that the US-Israel strikes on Iran have created a significant geopolitical shock, which has raised the global oil risk premium and increased demand for safe-haven assets such as gold and silver.
Rajeev Sharan, Head of Criteria, Model Development and Research at Brickwork Ratings, noted that for India, which relies on imported crude for nearly 90% of its needs, a sustained rise in Brent prices could lead to higher fuel costs, increased inflation, and a larger current account deficit. This situation complicates the Reserve Bank of India's efforts to manage inflation and may delay interest rate cuts.
Indian stock markets have already reacted negatively, anticipating increased volatility, foreign investor withdrawals, and pressure on sectors like automobiles, finance, and energy.
As long as the risk of escalation persists, precious metals are expected to remain in demand.
Sharan added that the conflict premium will only diminish when there is clarity regarding leadership in Tehran, reliable channels for de-escalation, and guarantees that crucial oil routes, including the Strait of Hormuz, remain accessible.
Reports suggest that Brent crude prices could exceed $90 per barrel if disruptions in the Strait of Hormuz continue, or even surpass $100 per barrel in the event of a wider regional conflict.
According to JM Financial Institutional Securities, every $1 increase in crude oil prices adds approximately $2 billion to India's annual import bill, thereby exerting pressure on the trade balance.
The Strait of Hormuz is a critical transit point for around 20% of global oil flows, with over 40% of India's crude imports relying on this route. The market is expected to shift from earnings-driven to oil-driven trading in the near future.
Extended tensions in the region may lead to higher logistics and marine insurance costs, disrupt shipping routes in the Gulf, and further strain the trade balance.