Anand Rathi has shared interesting insights on the ongoing Israel-Iran conflict and its impact on our markets:
Iran’s Role in Global Oil Production
- Iran contributes 3.5% of global oil output, down from 10% in the 1970s.
- Major producers: U.S. (22%), Saudi Arabia (11%), Russia (11%).
- Iran is under a U.S. embargo; nearly 80–90% of Iranian oil goes to China.
- India has stopped importing Iranian oil since 2020.
- No significant direct impact on Indian or global oil supply is expected due to the conflict.
Indirect Impact on Global Oil Market
- Strategic Chokepoints:
Nearly 70% of crude oil bound for Asia (including India) passes through the Strait of Hormuz and Bab el-Mandeb Strait (Red Sea). - Iran’s Influence:
- Iran directly controls the Strait of Hormuz.
- Iran exerts influence over Bab el-Mandeb via Yemen’s Houthi rebels.
Disruption of Global Oil Trade by Iran – Historical Cases
| Event | Duration | Impact on Hormuz | Red Sea Impact | Oil Price Rise | Normalization Time |
|---|---|---|---|---|---|
| Iran Sanctions (2011–12) | 6 months | Threats only | None | ~25% | 4 months |
| Gulf Tanker Attacks (2019) | 3 months | Attacks, delays | Limited | ~10% | 1 month |
| Red Sea/Houthi Attacks (2023–24) | 4 months | Indirect rerouting | Moderate (missile/drone) | ~15% | 2 months |
Impact on India
- India’s oil reliance shifted from Iran to Russia (35–40%), reducing exposure to Persian Gulf routes.
- A 25% rise in crude prices (from $65 to $81) for 6 months could:
- Widen current account deficit by $15 billion (0.3% of GDP).
- Slow real GDP growth by 0.2 percentage points.
- Increase retail inflation by 0.7 percentage points.
- Nominal GDP growth may rise by 0.5 percentage points.
- Sector impact: Oil extractors may benefit; airlines and others may face cost pressures.
- Short-term market volatility possible, but no medium-to-long-term impact on Indian equities due to strong macro and corporate fundamentals.