Frogs in Hormuz keep Indian refiners on edge as oil spikes | Today’s news
New Delhi: India’s oil import law is back in the spotlight after US President Donald Trump’s proposal on Monday to levy a 20% levy on vessels passing through the Strait of Hormuz sent oil prices soaring, raising concerns about the country’s inflation and economic growth. While Trump later dropped the tariff plan in favor of a blockade targeting only ships linked to Iran, the flare-up underscored India’s vulnerability to disruptions in energy markets. The development sent Brent crude up 5% to more than $87 a barrel on Tuesday, before easing to around $85 after Trump’s flip-flop.
The risks are significant for India, which imports about 90% of its oil requirements and spends more than $120 billion annually on oil imports. A sustained $1 per barrel hike in oil prices increases the country’s annual import bill by around Rs 18,000 crore. Oil imports typically account for 17-25% of India’s total annual import costs.
Read also | Fresh flare-ups in West Asia cloud India’s oil options in Iran
However, Indian refiners are well-positioned to meet near-term demand, having already tied up oil supplies by August and diversifying away from West Asia. “The supply scenario has again returned to what it was a month ago. Refiners have diversified crude imports so supplies from sources outside West Asia would continue. Now they are aware of the situation and also the alternatives for energy supply,” said Manas Majumdar, oil and gas leader at PwC India.
Indian refiners are poised to meet near-term demand, with supplies tied until August, Mint said earlier.
Read also | Indian refineries are bracing for oil volatility after fresh Iran-US strikes
“However, refinery inventories would now be lower than before because they were not given the necessary time to replenish them. If the war escalated after a few months, then it would be a different scenario with potentially better refinery inventories,” he added.
“Compared to last year, every $10 per barrel increase in crude oil prices translates into roughly $42 million a day in additional oil import costs for India. While this will gradually increase the pressure on crude marketing companies to recover, the impact is expected to be slower than during previous disruptions as near-term purchases are largely in place,” said Pankaj Srivastad, senior vice president, market for energy, Rycom.
Oil supply cuts have already driven inflation in the world’s sixth-largest economy. The wholesale price index rose to double digits in June to 9.87% from 9.68% in May due to higher food and energy prices, data released on Tuesday showed.
A sharp rise in oil prices could fuel headline inflation and hamper growth at a time when El Niño weather and a weaker monsoon are already expected to put pressure on the economy. The Reserve Bank of India last month cut its growth forecast for the current fiscal year to 6.6% from 6.9%, citing rising risks of conflict in West Asia, higher energy prices, supply disruptions and weather-related uncertainties.
At $87 a barrel, Brent crude is at its highest since June 12, amid escalating tensions between Iran and the US less than a month after the two sides signed an interim peace deal.
Read also | Iran’s oil may return, but Indian refiners eye concessions
As the U.S. and Iran trade, daily ship traffic through the Strait of Hormuz has plummeted to about 11 from more than 90 in late June after the two nations signed an agreement on June 18.
A total of 73 vessels crossed the Strait of Hormuz between July 10 and 12, according to S&P Global Commodities at Sea. “This equates to less than 25 voyages per day on average and underlines the continued impact of escalating security risks on vessel movements on the waterway,” it said. The total number of transits on 12 July dropped to just 11 after Iran declared the strait closed during the day, with the Gulf Straits Authority saying passage was not possible due to recent “illegal movements of US military forces” in the region. This represented the lowest daily level since June 14 and the first day since June 12 that no inbound crossings were recorded. The latest update from S&P Global Commodities says there were 17 transits through the Strait of Hormuz on July 13. The strait provides roughly a fifth of the world’s oil and gas supplies.
In a post on Truth Social on Tuesday, Trump changed his stance, announcing that “oil is flowing like never before” and that the Strait of Hormuz “is open to ALL shipping except Iran – and that’s because of their lying, violent and malicious leadership that is leading them down a path of TOTAL DESTRUCTION.” He went on to say that there would be a “FULL blockade, but only on ships coming to and from Iranian ports or carrying anything to do with Iranian cargo.”
He withdrew the proposal for a 20% levy, saying, “Based on highly productive conversations with Middle Eastern leadership, I have decided to replace the 20% levy with the United States’ reimbursement for the trade and investment agreements that the various Gulf states have with the United States.”
