Israel-Iran clash: No immediate impact on crude oil supply, say officials

Officials say India's crude and LNG imports remain steady but warn that any hostilities affecting the Strait of Hormuz could threaten oil flows from Gulf partners

The latest flashpoint in West Asia is unlikely to affect India's overall crude oil and liquefied natural gas (LNG) supplies, which remain “healthy” as well as imports from West Asia, said petroleum ministry officials.

 

“Inbound volumes are not expected to be impacted. We also have a good stock in line with our medium-term demand estimates. We are monitoring the situation,” a ministry official said.

 

The crisis also does not threaten India's imports directly as it does not import crude oil from Iran. This is because of difficulties in payment to the heavily sanctioned Islamic regime in Tehran, he pointed out.

 

Importers have doubled down on Russian crude in recent months. The imports from Russia were set for a 6-month high in May, with arrivals of around 1.6 million barrels per day (b/d), energy cargo tracker Vortexa estimated.

 

Meanwhile, imports from traditional partners in West Asia have held steady.

 

In FY25, Iraq ($27.35 billion), Saudi Arabia ($20.09 billion) and the United Arab Emirates (UAE) ($13.86 billion) continued to be the second, third and fourth-largest sources of crude for India, after Russia, official data shows.

 

The share of crude coming from these nations has seen a slow but steady rise in recent months as discounts on Russian crude had shrunk, and as the government prioritised the diversification of its oil imports.

 

 

Despite a series of regional conflicts erupting across West Asia as a result of the Hamas attack on October 7, 2023, fears of a potential disruption in supply of crude oil have been proven wrong.

 

While the geopolitical risk premium on oil had resulted in rising crude prices in late 2023, a region-wide fluctuation in oil production and export did not take place, another official pointed out. This is because Iran has not blocked the Strait of Hormuz through which more than half of all crude oil and at least 80 per cent of the natural gas bought by India passes through, officials said.

 

The entire flow of crude oil from Iraq, Saudi Arabia, and the UAE — cumulatively the largest sources of imported oil for India — may be at risk if Iran attempts to block the strait, said executives of state-run oil-marketing companies.

 

However, major powers such as the US are expected to step into action if the strait is threatened. This is because it handles nearly 20 per cent of global oil supply, or roughly 21 million b/d, according to industry estimates.

 

Meanwhile, Israel sits away from major oil-producing regions. 

 

Natural gas prices rose on Friday afternoon, tracking broader gains across energy markets amid escalating tensions in West Asia.