The conflict in the Strait of Hormuz may raise the oil import bill in India by $ 14 billion, warns ICRA

With the escalation of tensions in the Strait of Hormuz after the Iranian conflict of Israel, the ICRA Credit Classification Agency warned that any continuous disturbance in oil and gas supplies through the selection point may lead to an increase in the economy in India-which leads to an increase in oil imports, the expansion of the current account deficit (CAD), and the delay in investing the private section.

Hormuz (Soh) is a strategic commercial path through which about 20 % of global oil flows and liquefied natural gas flow. According to ICRA, about 45-50 % of crude oil imports in India and 60 % of natural gas imports pass through this corridor. The report said: “Crude oil imports from Iraq, Saudi Arabia, Kuwait and the United Arab Emirates, which pass through Soh, represent about 45-50 % of the total crude imports by India. About 60 % of the imports of natural gas by India pass through Soh.”

The conflict erupted on June 13, when Israel launched preventive strikes on Iranian army and energy sites. Oil prices jumped from 64 to $ 65 a barrel to $ 74-75 a barrel in the days after that, reflecting fears of disrupting the offer.

ICRA estimates that an increase of $ 10/barrels in the average crude price may increase the net net oil import bills in India by $ 13-14 billion in the fiscal year and CAD is 0.3 % of GDP. The agency pointed out that “the continuous glow in the conflict poses a biological risk of our estimates of crude oil prices, and thus net oil imports and the current account deficit.”

While ICRA expects crude prices to reach $ 70 to $ 80 a barrel in the 2016 fiscal year, it warns that the prolonged conflict in the region may push prices up. The report said: “If the price persists at the current levels, this may not lead to a material review of the gross domestic product growth expectations in India, which is currently linked by 6.2 % for the financial year. However, a continuous rise in the current levels will affect the INDIA Inc. The uncertainty may lead to the delay of special Capex.”

Oil companies on the source will benefit from the rise in crude prices, but the image is more complicated for the novice sector. Icra said: “The increase in crude oil and gas prices will be positive for companies’ profitability on the source even as marketing margins from players are affected in the direction of the river course,” adding that the expansion of the LPG channel is most likely under high prices.

The report adds that there are limited alternatives to bypass the strait. “The Kingdom of Saudi Arabia and the United Arab Emirates have pipelines in their place with a surplus capacity of about 2.5-3.0 MB, leaving a large supply in danger, in the event of an increase in conflict.”

More than 80 % of 20 million barrels (MBD) is consumed that transports the hormonal strait in Asia, where India, China, Japan and South Korea represents about 65 % of this request.

While the full range of damage to Iranian oil infrastructure is unclear, attacks were reported on refineries, storage corridors, and energy assets. Iran produces about 3.3 MB, of which 1.8-2.0 MB of export – which means that any ongoing disturbance can deepen the global symptoms.