India-Pakistan tensions not to impact crude prices as supply chains are intact, say experts

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The growing tensions between India and Pakistan would not have an immediate impact on crude prices, as supply chains remain unaffected, experts told Moneycontrol on May 7, hours after Indian forces hit terror camps in the neighbouring country.

The benchmark Brent was at trading around $62.67 a barrel, largely unchanged from previous day’s close of $62.15.

“Unless it is a full-blown war, which does not seem to be likely, there is no impact on India's economy,” said Hitesh Jain, lead analyst at Yes Securities.

There are worries of an armed escalation as Pakistan has said it would respond to Operation Sindoor at the time and place of its choosing.

Tensions in the Middle East and the war between Russia and Ukraine triggered high volatility in crude, as major oil producing countries were involved and important shipping routes were affected — disrupting the supply chain.

India and Pakistan conflict does not immediately pose such challenges to the oil market, experts said.

“India consumes 5 million barrels per day, which is less than 5 percent of the global oil market. I don’t think India-Pakistan war is going to have any impact (on oil prices) because it is not a supply side risk,” Jain said.

Oil generally tends to be influenced more by supply than demand side, he said. “It is always a supply side commodity… There is not historical precedent that India-Pakistan conflict has affected oil prices,” Jain said.

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India is the third-largest oil consumer in the world, with domestic crude demand close to five million barrels a day (bpd). Pakistan’s oil consumption stands at over 500 thousand bpd.

India is a big player in the international oil market, meeting 85 percent of its crude needs through imports. It is too soon to measure the implications of escalating tensions on India’s oil demand, experts said.

“No major impact on (India’s oil) demand is expected. If this snowballs into something, there could be a slight increase in domestic demand due to uptick in movement towards border but since, we are not involved in the supply side of oil (market), not much impact on prices in expected as of now,” said Prashant Vasisht, VP & Co-Head, Corporate Ratings, ICRA.

Crude prices have slumped recently as the Organisation of Petroleum Exporting Countries and its allies (OPEC+) has decided to ramp up production by another 411,000 barrels a day in June, as the oil cartel looks to gradually unwind the 2.2 million bpd of voluntary output cuts put in place since 2023.

Oil minister Hardeep Singh Puri told Moneycontrol in February that adequate availability and stable prices amid geopolitical tensions would be the major challenges for the energy market in 2025.

In early hours of May 7, India hit nine terrorist camps in Pakistan and PoK, two weeks after 25 Indians and a Nepali citizen were killed in a terror strike in Kashmir’s Pahalgam.

Two key sites among the nine were Muridke and Bahawalpur, headquarters of terror outfits Lashkar-e-Taiba and Jaish-e-Mohammed.

Two of the terrorists who gunned down the 26 people on April 22 were Pakistani citizens, authorities have said.