Moneycontrol Pro Panorama | Could oil prices climb to $150?

Crude Oil,

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Crude oil prices have surged by nearly 18 percent following Israel's attack on Iran. Oil prices are approaching their six-month highs as the conflict between the two countries continues. The significant increase in oil prices over the past three trading days has been the largest since the Russia-Ukraine conflict in 2022.

Analysts have rapidly provided their forecasts, with predictions for prices ranging from $65 to $150 per barrel, depending on various scenarios.

There is a consensus that disruptions to Iran's oil supply will not have a significant impact on oil prices. Iran, a member of the OPEC+ oil cartel, currently produces approximately 3.3 million barrels per day (bpd) and exports more than 2 million bpd of oil and fuel. However, OPEC and its allies, including Russia, have spare capacity that roughly matches Iran's output, allowing them to offset any potential disruptions.

Iran's oil and gas supply is expected to be affected following Israeli strikes on critical infrastructure, including the South Pars gas field — the largest in the world — which has partially suspended operations due to a fire. Additional attacks targeted the Tehran refinery, fuel depots, and offshore gas platforms. These strikes represent the first time Israeli forces have directly attacked Iranian energy assets, raising concerns about the possibility of a broader regional conflict.

OPEC+ raised its oil output by 411,000 barrels per day (bpd) during its June meeting, which will help address the current supply shock to some extent. However, a more pressing concern is the possibility that Iran might block movement through the Strait of Hormuz. This strategic waterway is crucial, as it accommodates approximately one-fifth of the world's total oil consumption, amounting to roughly 18-19 million bpd of oil, condensate, and fuel.

The Strait of Hormuz is particularly critical for India. According to the Global Trade Research Initiative (GTRI), nearly two-thirds of India's crude oil and half of its liquefied natural gas (LNG) imports pass through this strait. My colleague Neha Dave has also argued on similar lines here. Additionally, around 30 percent of India's West-bound exports to Europe, North Africa, and the US East Coast pass through the Bab el-Mandeb Strait.

If the route is blocked, ships will need to take a longer journey around the Cape of Good Hope. This detour will increase transit times by approximately two weeks and impact freight costs, similar to what we experienced during the Suez Canal blockage.

According to research firm DBS, the worst-case scenario arises if the conflict damages oil infrastructure in the region, leading to blockages at key chokepoints. In such a situation, oil prices are expected to surge above $150 per barrel, according to the report.

A scenario like this would be drastic for India, as it would lead to a weakening of the rupee and rising inflation. The Reserve Bank of India might be compelled to reverse its recent interest rate cuts if oil prices surge. However, some analysts caution that a complete closure of the strait would hurt Iran's own economy, making it an unlikely outcome.

The world has experienced turbulence in the oil-rich Middle East since the 1973 oil embargo. Although multiple wars in the region have caused short-term spikes in oil prices, these prices have eventually returned to their long-term averages.

The global economy is still struggling to recover, and any disturbances in the energy market could have a severe impact on both economies and markets.

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