Energy availability, not price spike is the biggest risk from West Asia conflict: Kotak's Sanjeev Prasad

Oil math manageable, but supply disruption could hurt India, says Kotak’s Sanjeev Prasad

• India faces gas supply risks amid West Asia conflict
• Disruption in Strait of Hormuz could impact oil and gas supply
• India's lack of gas storage makes supply disruptions critical

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As global energy markets swing wildly amid the escalating West Asia conflict, the real risk for India may not be soaring crude prices but the availability of gas supply, said Sanjeev Prasad, Managing Director and Co-Head at Kotak Institutional Equities.

Speaking exclusively to Moneycontrol, Prasad said the current energy shock is fundamentally different from previous oil cycles because the issue this time is not just about price but about supply.

His comments come at a time when crude oil briefly surged to $119 per barrel before retreating to around $93. At the same time, global gas markets have tightened sharply. Europe’s benchmark natural gas prices continued to soar after a 67 percent weekly jump after key LNG facility in Qatar came under a drone attack during the conflict, forcing them to halt shipments.

Prasad pointed out the vulnerability of the Strait of Hormuz, one of the world’s most critical energy transit routes. “About 20 percent of crude oil global supply passes through the Strait of Hormuz and if that supply is affected, there is no way the world can replenish the supply,” he said.

The same risk applies to natural gas as well. “A decent quantity of global energy supply again comes from the Middle East and in particular from Qatar. So if there is any disruption over there, oil and gas prices will spike up and if the market starts to believe that things are calming down, prices will come down,” he added.

Why this oil shock is different from previous cycles

Prasad explained that previous oil shocks were largely driven by demand-supply imbalances, particularly during the global growth boom of the 2000s.

“The issue historically has been that crude prices have gone up along with gas prices on demand-supply imbalances, more to do with the fact that global demand was growing very strongly in the 2000 decade while supply was lagging,” he said. But the current crisis presents a different risk dynamic. “This time around, the issue is not just the higher oil and gas prices. It is more the availability of oil and gas and that is where the math really breaks down as far as India is concerned.”

From a macro standpoint, he noted that India will still be able to absorb higher oil prices.

“Every dollar value change in crude oil prices and equivalent increase in gas prices, roughly it is about $2.2 billion to India's current account slash balance of payments, which is about 0.055 percent of GDP,” he explained. Even in a stress scenario where crude and gas prices remain elevated, the overall impact could remain manageable.

“Even if you take $20 a barrel higher oil and gas prices in equivalent terms for a longish period of time, let's say on an annualized basis, then you're looking at somewhere about $44 billion, which is about 1 percent point of GDP. That is something which we can manage," he added.

Gas availability can be the real challenge for India

However, he warned that the bigger challenge lies in the availability of supply, especially in the event of disruptions to Middle East shipping routes.

“If you look at India's own math, let's say on calendar 2025 basis, almost 50 percent of the crude oil which India imported actually came from the Strait of Hormuz. Same math applies to gas also. While India may still have some buffer when it comes to crude oil and petroleum products, thanks to inventories maintained by refiners and limited strategic reserves, the situation is far tighter for natural gas where we really don't have any storage capacity beyond a few days,” he said, adding that in the event of a non-availability, price of crude or natural gas would not matter.