Crude Prices: Another Conflict Raises Geopolitical Premium - Impact On Indian Oil And Gas Companies

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ICICI Securities Report

As mentioned earlier, despite the upheaval in the Middle East, the rebound in crude prices has still been less than average crude prices in FY25 and well below the last four- year average prices, so the impact on profitability of the Indian Oil and Gas companies is not unreasonable yet.

Having said that, we acknowledge that the reaction in the stock prices is an assessment of how volatile the Middle East situation is, with the potential stoppage of oil & gas shipments from the Straits of Hormuz and the possibility, however remote of NATO getting dragged into the conflict if Iran attacks any western military bases in the Middle East.

We estimate a material impact on oil marketing companies earnings and upside risk to upstream earnings even with crude at $73-74/barrel of oil as is the case now, with further spikes unlikely to reflect in upstream company earnings but likely to have a negative impact on OMC as well as gas company earnings (as prices of Crude linked LNG will also rise steadily).

We leave our estimates/views unchanged as of now, but will continue to monitor the crude price markets closely over the next few weeks to take a more definitive view of the coverage universe.

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