Iran-Israel Conflict Sparks Fear Of Oil And LNG Price Surge Amidst Strait Of Hormuz Blockade

The escalating conflict between Iran and Israel has raised concerns among analysts and experts about the potential ramifications for global oil and liquefied natural gas (LNG) markets, with warnings of possible price surges and inflation spikes looming large.

The Strait of Hormuz, a critical passage for oil shipments from countries like Saudi Arabia, Iraq, and the UAE to major importers such as India, could face blockades by Iran, leading to significant disruptions in supply chains. Analysts caution that such actions could send both oil and LNG prices soaring, exacerbating inflationary pressures worldwide.

Recent days have witnessed heightened tensions between Iran and Israel, marked by a series of drone and rocket attacks by Iran on Israel, prompting retaliatory missile strikes. With crude oil prices already hovering around $90 per barrel amidst the conflict, financial experts at Motilal Oswal Financial Services have highlighted the potential for further escalation should Iran move to block the Strait of Hormuz entirely or partially.

While alternative routes for oil transportation exist through the Red Sea, there are no feasible alternatives for LNG, compounding concerns over supply disruptions. The closure of the Strait of Hormuz could lead to a sharp increase in crude oil prices, refining margins, and spot LNG prices, analysts predict.

Reports suggest that alternative routes may only be capable of handling a fraction of the current volume transiting through the Strait, resulting in increased freight expenses. India, heavily reliant on overseas sources for over 85% of its crude oil requirements, imports both oil and LNG through the vital waterway.

Hardik Shah, Director at CareEdge Ratings, warned of potential spikes in crude prices as tensions between Iran and Israel escalate. Despite this, Shah pointed out that India's substantial share of Russian crude imports, comprising 30% of total imports by the end of FY24, could help mitigate some of the impact on import bills for crude oil.

However, Moody's Analytics highlighted the broader risks posed by rising oil prices to Asia-Pacific economies, emphasizing three main challenges. Firstly, higher energy and fuel costs contribute to inflationary pressures, affecting consumer prices across various sectors. Secondly, increased production and transport costs could lead to higher prices for goods, including essential commodities like food. The report notes that elevated food prices, driven by factors such as transportation and fertilizer costs, pose a particular concern for many Asian economies.

*Inputs from Moneycontrol*