The conflict in the Hormuz Strait can increase India bill to oil import of $ 14 billion, warns the ICRA
As tensions increase in the Hormuz Strait following the Iran -Israel conflict, the ICRA credit rating agency warned that any sustained disruption of oil and gas supplies by the strangulation plan could considerably repress the economy of India – increase oil imports, widen the current account deficit (CAD) and delay investments in private sector.
The Strait of Hormuz (SOH) is a strategic trade route through which almost 20% of the world’s flows of oil and LNG. According to the ICRA, around 45 to 50% of India crude oil imports and 60% of its natural gas imports pass in this corridor. “Imports of crude oil from Iraq, Saudi Arabia, Kuwait and the United Arab Emirates who pass by Soh represent around 45 to 50% of the total gross imports by India. About 60% of natural gas imports by India pass through SOH,” said the report.
The conflict broke out on June 13, when Israel launched preventive strikes on Iranian military and energy sites. Oil prices increased from $ 64 to $ 65 per barrel to $ 74 to $ 75 a barrel in the days that followed, reflecting fears of the disruption of the offer.
The ICRA estimates that an increase of $ 10 / Bbl in the average gross price could increase the net importation of net oil from $ 13 to $ 14 billion during an exercise and enlarge the CAD of 0.3% of GDP. “A sustained push of the conflict poses rising risks for our estimates of crude oil prices, and therefore net oil imports and current account deficit,” noted the agency.
While the ICRA expects crude prices on average $ 70 to 80 a barrel during the 20126 financial year, it warns that a prolonged conflict in the region could increase prices. “If the price persists at the current levels, it may not lead to a material revision in India GDP growth forecasts, which is currently set at 6.2% for the exercise. However, a sustained increase compared to the current levels would weigh on the profitability of India Inc. and prolonged uncertainty can delay the private capex,” said the report.
Upstream oil companies benefit from an increase in crude prices, but the image is more complex for the downstream sector. “The increase in prices of crude oil and gas will be positive for the profitability of businesses upstream, even if the marketing of players downstream are negatively affected,” said ICRA, adding that the expansion of the LPG underloads is probably under high prices.
The report adds that there are limited alternatives to bypass the strait. “Saudi Arabia and water have pipelines in place with an excess capacity of approximately 2.5 to 3.0 MBD, leaving a significant supply in danger, in case the conflict increases.”
More than 80% of the 20 million barrels per day (MBD) oil passing the Hormuz Strait are consumed in Asia, India, China, Japan and South Korea, representing around 65% of this request.
Although the complete extent of damage to Iranian oil infrastructure is not clear, attacks on refineries, storage centers and energy assets have been reported. Iran produces approximately 3.3 MBDs, including 1.8 to 2.0 MBD is exported – which means that any sustained disturbance could deepen the imbalances in world supply.
