The escalating tension in West Asia following Israel’s strike on Iran left crude oil prices boiling in the international markets, exerting pressure on the rupee against the US dollar and roiling equity markets across the globe, including India.
Brent futures for August were up 5.65 per cent at $73.30 a barrel at 10 pm on Friday, after climbing all the way up to $78 a barrel, as the escalation threatened to upend the production and movement of oil in the region.
Even as the Union petroleum minister Hardeep Singh Puri ruled out any immediate impact of the crisis on India, experts cautioned that a prolonged conflict could spell trouble for the economy.
Puri said India, the world’s third largest importer of oil and fourth largest buyer of natural gas, has adequate supplies to last the next few months.
Madhavi Arora, chief economist of Emkay Global Financial Services, in a note said every $10/barrel increase in oil can stoke consumer price inflation (CPI) by 35 basis point, even as she ruled out changing forecasts immediately.
Trade experts also noted that the conflict may jack up the freight rates as ship movement along the Strait of Hormuz, which accounts for the passage of a third of the world’s LNG and a fourth of the global oil cargo, is affected. The Directorate-General of Shipping on Friday asked Indian seafarers and Indian flagged ships sailing along this route to exercise caution.
Iran produces around 3.3 thousand barrels per day (mbpd), or around 3 per cent of global crude oil, and exports around 1.5 mbpd, with China being the main importer (80 per cent), followed by Turkey.
Impact on rupee
The Indian Rupee plummeted 55 paise to 86.07 against the US dollar on Friday. At the interbank foreign exchange, the rupee opened at 86.25 against the greenback and traded in the range of 85.92-86.25 before closing at 86.07, up 55 paise from its previous close. Traders said that intervention of the Reserve Bank of India may have arrested the dollars’ further gain against the rupee.
Given India imports 85 per cent of its energy requirements, hardening oil and gas prices can potentially inflate the country’s import bills, exert pressure on the forex reserve and widen the current account deficit. All put together, they can potentially weaken the rupee further against the dollar.
Stocks fall, gold climbs
While the widening conflict roiled investors’ sentiments across financial markets in the world, demand for safe haven assets such as gold was on the rise. Gold prices on Friday surged ₹2,200 to trade near a record high of ₹1,01,540 per 10 grams in the national capital, rising for the third consecutive day.
In contrast, the 30-share BSE Sensex dived 573.38 points, or 0.70 per cent, to settle at 81118.60, falling for the second consecutive day. The 50-share NSE Nifty dropped 169.60 points or 0.68 per cent to 24,718.60. The market capitalisation of BSE-listed firms eroded by ₹8,35,799.85 crore to ₹4,47,21,343.34 crore ($5.19 trillion) in two days.
Shares of companies sensitive to oil prices such as oil marketing companies, aviation, paints, adhesives and tyres were the hardest hit on the bourses.