Explainer: Will the Iran-Israel conflict affect crude prices in the world and India?

Tribune Web Desk

Vibha Sharma

Chandigarh, April 15  

Except for the period between January-February 2022 and June-July 2022 when the crude oil crossed the $100 per barrel mark, prices have largely remained in two digits amid persisting geopolitical situations—Russia-Ukraine and Israel-Gaza conflicts—in the world and some shipping companies opting for a longer route due to the Red Sea turmoil.

According to reports, “oil prices fell on Monday as market participants dialled back risk premiums” in the wake of Iran’s attack on Israel. On April 12, Brent crude futures settled at $90.45 per barrel, at around 1 % higher due to tensions between Iran and Israel.

Brent was trading at $89.35, down by 1.22 %, on Monday, as per the Oil Price.com, 

Iran’s drone and missile attack on Israel has raised concerns that it may turn into a bigger regional conflict, affecting oil traffic through the Middle East, experts say. Israeli Minister Benny Gantz was also quoted as saying on Sunday that Israel would choose the appropriate time and method to retaliate and “exact the price from Iran”.

According to the US Energy Information Administration, most of the crude oil reserves in the world are located in regions that have been prone to political upheaval or in regions that have had oil production disruptions because of political events.

“Several major oil price shocks have occurred at the same time that political events caused supply disruptions, most notably in recent years, conflicts and political events in the Middle East, the Persian Gulf, Libya, and Venezuela have contributed to world oil supply disruptions that have resulted in higher oil prices,” it adds.

Will it affect India?

Fuel prices are the biggest drivers of inflation and prices of essential commodities. Though experts believe that the latest conflict could set the global crude on fire, India may remain unscathed till June due to the upcoming General Election.

“Tension in supply or transit zones can precipitate an increase in the cost of transport and insurance but Indian domestic retail prices of petrol, diesel and cooking gas are likely to remain unchanged till election results are announced,” they add.

Being a net importer of crude oil, India is particularly sensitive to global oil prices. 

Nearly 85% of its petrol and diesel requirements are met through imports. 

“The quality of crude oil imported by India from the Persian Gulf is called Indian Basket crude. It is weighted average of Dubai and Oman (sour) and Brent Crude (sweet) crude prices,” they explain.

Indian officials say rising crude oil prices are always a matter of concern.

OPEC dominance

In the past few years, the US has emerged as a major player in the oil market despite the OPEC dominance. Analysts say its role as a key exporter is shaping the future of global energy markets amid the prevailing geopolitical and economic concerns.  

According to the EIA, crude oil prices are driven by global supply and demand. Economic growth is one of the biggest factors affecting petroleum products and their demands.

“The Organisation of the Petroleum Exporting Countries (OPEC) can significantly influence oil prices by setting production targets for its members. OPEC includes countries with some of the world’s largest oil reserves. At the beginning of 2021, OPEC members controlled about 72% of total world proved crude oil reserves (plus lease condensate), and they accounted for 37% of total world crude oil production in 2021,” it adds.

US competition

However, US crude oil exports established a record in 2023, averaging 4.1 million barrels per day (b/d), 13% (482,000 b/d) more than the previous annual record set in 2022.

“Except for 2021, US crude oil exports have increased every year since 2015, when the US ban on most crude oil exports was lifted. The resulting total net petroleum imports (imports minus exports) were about -1.64 million b/d, which means that the United States was a net petroleum exporter,” as per the EIA. 

The US Energy Information Administration (EIA) collects, analyses and disseminates independent and impartial energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment.

Despite being a net importer of crude oil, the US exported small amounts of crude oil for over 100 years. 

There was a crude oil export ban but some exports were allowed, primarily to Canada.

However, the situation changed as the shale oil boom rapidly expanded US oil production. in the past decade or so. 

“The net impact of continued US export growth has been a steady decline in net crude oil imports. The journey from minimal exports to becoming a prominent player in the global market changed the dynamics of the market controlled by OPEC,” say experts, adding that the US exports will continue to shape the markets, keeping it competitive. 

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