Crude oil prices increased by about 1% on Tuesday, showing a temporary stabilization after a more than 10% surge in the previous session. This rise is attributed to escalating tensions in West Asia and worries about supply disruptions through the Strait of Hormuz. US crude futures went up by 1.4% to $72.23, while Brent crude saw a 1.87% increase, reaching $79.2 per barrel early on Tuesday.
Iran’s retaliatory strikes on oil and gas facilities have raised concerns about potential supply disruptions, leading to a spike in oil prices and concerns about inflation. Tehran’s actions targeted Saudi Arabia’s oil and gas infrastructure and threatened shipping in the vital Strait of Hormuz. Analysts noted that measures announced by the US government to address rising energy prices helped alleviate some of the panic that drove the surge on Monday. US Secretary of State Rubio mentioned that Treasury Secretary Scott Bessent and Energy Secretary Chris Wright would unveil plans to tackle the increasing energy costs.
Despite the calming effect of the US announcements, the threat to shipping through the Strait of Hormuz, a critical point for global oil transportation, continued to support prices, according to market participants. They mentioned that India could likely manage a temporary closure of the strait. However, if a prolonged closure occurs, India would need to diversify its oil sources. Reports suggest that India is already exploring alternative suppliers like Russia, Africa, and South America.
Morgan Stanley, an investment bank, warned that Brent crude prices might reach $120 per barrel if a full-scale conflict in West Asia disrupts oil flows through the Strait of Hormuz for an extended period. Another report suggested that Brent crude could surpass $90 per barrel in case of strait disruption or exceed $100 per barrel in a broader regional conflict. The report also outlined potential price increases, with a limited conflict possibly adding $5–$10 per barrel and direct damage to Iranian oil infrastructure potentially adding $10–$12 per barrel.
For India, every $1 increase in crude prices raises the annual import bill by around $2 billion, exerting pressure on the trade balance. The Strait of Hormuz is crucial for global oil flows, with over 40% of India’s crude imports passing through it.
