Israel–Iran Conflict: Impact On India Is Limited Due To Less Import Dependence
However, in case average crude oil prices surge 25% in six-month period, India's trade and current account deficit will likely increase, Anand Rathi Research said.
The Israel-Iran conflict is likely to have limited impact on India as the country has less import dependence on Iran. India stopped importing oil from Iran in 2020. Moreover, the country's dependence on routes through the Strait of Hormuz and Bab el-Mandeb Strait has reduced significantly.
However, in case average crude oil prices surge 25% in six-month period, India's trade and current account deficit will likely increase by $15 billion, which translates to 0.3% of GDP. The real-GDP growth will likely decline by 0.2%, while retail inflation may increase by 0.7%, the research firm said.
"Since India relies on imports for over 80% of its crude oil needs, a conflict between Iran and Israel could lead to a spike in Brent crude prices," said Naveen Vyas, senior vice president, Anand Rathi Global Finance. Any disruption in oil prices and supply will affect oil marketing companies, paints, automobile, and cement sectors. If tension rises further and persists for three-to-six months, these sectors will likely experience margin pressure, demand slowdown.
Israel launched an air strikes against Iran on Friday, which resulted in deaths of several top military officials and nuclear scientists. Following this, oil prices jumped nearly 14% in Friday's session. Oil prices jumped over 5% in Monday's session. As of 10:42 a.m. brent crude's August future contract was trading 1.02% higher at $74.96 a barrel.
Iran accounts for 3.5% of global crude oil production.
Missile and drone exchange continued between the two countries till Monday. Causalities reported officially so far are 224, Bloomberg reported.
Iranian oil exports are under US embargo currently. Meanwhile, China imports nearly 80–90% of Iranian oil.
Iran has a direct control over the Strait of Hormuz and influence over Bab el-Mandeb Strait through Yemen's Houthi Rebels. Hence, the country has a significant capacity to disrupt global oil trade.
Nearly 70% of oil supply to Asia, including India, pass through Strait of Hormuz and Bab el-Mandeb Strait.
However, past episodes show that none of the events had a longer-term impact on global oil prices.
