A recent report highlighted that the ongoing surge in crude oil prices, attributed to the US-Iran conflict, is expected to benefit companies involved in upstream oil exploration, energy infrastructure, and select refineries. Conversely, sectors like aviation, paints, tyres, chemicals, and logistics may face pressure due to their sensitivity to oil prices. The report also suggested overweight positions in defense and infrastructure sectors, while maintaining stocks in less oil-sensitive areas such as banking, IT services, and healthcare.
Aviation, which heavily relies on fuel constituting 30–40% of operational costs, is particularly vulnerable to oil price fluctuations. Additionally, industries like paints, chemicals, and plastics are likely to experience margin squeezes due to inflation in petroleum-based raw materials. Logistic and transportation firms will be affected by increased diesel costs, leading to higher freight expenses and reduced margins.
The impact of rising crude oil prices extends to various macroeconomic factors, including inflation, interest rates, currency movements, current account deficit, and corporate profitability. For instance, every $1 increase in crude oil prices could raise India’s annual import bill by $1.5–2 billion. Moreover, a $10 surge in oil prices might widen the current account deficit by approximately 0.35–0.5% of GDP, with a 10% increase in crude prices potentially elevating inflation by nearly 20 basis points.
The report emphasized that while higher oil prices pose challenges, India has historically managed oil shocks through policy interventions and diversification of energy sources. It also noted that the impact on oil marketing companies will be contingent on government pricing policies, whereas upstream producers like ONGC and Oil India stand to benefit directly from increased crude prices through enhanced realizations per barrel.
