Transit shock! Why Kotak Sec has sell on OMCs, Petronet LNG, IGL, MGL?

A sharp escalation in tensions between the US and Israel on one side and Iran on the other—along with reported damage to regional energy infrastructure has resulted in “one of the most severe supply disruptions in recent history”, according to Sumit Pokharna, VP fundamental research, Kotak Securities. 

 

The Islamic Revolutionary Guard Corps (IRGC) has announced the closure of the Strait of Hormuz (SoH), warning that any vessel attempting to transit the waterway would be targeted. 

 

Sumit Pokharna of Kotak Securities believes the Strait of Hormuz is a critical chokepoint for global energy flows, with approximately 20 million barrels of crude oil per day and 86 million tonnes of liquefied natural gas (LNG) per annum transiting the waterway. This represents roughly 27 per cent of global oil trade and 20 per cent of global LNG trade, making any disruption a significant risk to India’s oil and gas sector.

 

Meanwhile, last checked, Brent rose $1.17, or 1.4 per cent, to $82.57 a barrel in trade.  The brokerage describes the current situation as “not merely a price shock—but a transit shock,” warning that even a temporary closure of the Strait of Hormuz can disrupt trade flows, inflate costs, strain margins, and expose structural vulnerabilities in import-dependent economies such as India. For equities, analysts believe caution remains warranted.

Strait of Hormuz closure: How will the situation impact India?

Kotak Securities said that India is particularly vulnerable to the whole scenario as an estimated 50–55 per cent of its crude oil and LNG imports transit the Strait of Hormuz. The brokerage highlighted that India’s strategic petroleum reserves cover only about 8–9 days of oil demand, while there are no comparable strategic reserves for natural gas.

 

While a prolonged shutdown may be unlikely, Kotak warned that even a disruption lasting a few weeks could create significant market dislocation, pointing to early stress signals, including reports that Qatar has shut LNG plants, raising concerns over supply continuity. If the disruption extends beyond the very short term, Kotak expects supply-side stress to intensify quickly, with gas supplies likely to be rationed in the near term.

Some cushion from supply backdrop, but chokepoints are “binary”

Kotak Securities noted that global oil markets were previously in an oversupplied position, which could cushion the impact of any reduction in Iranian exports. It also pointed to eight Opec countries agreeing to increase output by 206 kb/d from April 2026 following a three-month pause. However, the brokerage cautioned that chokepoints are binary risks—when transit is blocked, spare capacity offers limited immediate relief.

Strait of Hormuz closure: Impact on Oil & Gas sector 

Oil marketing companies (OMCs)/ Oil refiners

Kotak Securities highlighted that oil refiners and marketing companies could potentially sustain physical crude volumes through alternative sourcing, but the cost structure may deteriorate sharply due to:

• Higher crude procurement prices
• Elevated freight and insurance costs
• Longer shipping routes

With retail fuel prices effectively frozen, the brokerage expects marketing margins to compress, weakening earnings visibility.

 

In this week so far, Bharat Petroleum Corporation (BPCL) fell over 7 per cent; Indian Oil Corporation (IOCL) and Hindustan Petroleum Corporation (HPCL) slipped over 8 per cent. 

City gas distribution companies (CGDs):

According to the report, the gas transmission and LNG import chain—including companies such as GAIL and Petronet LNG—could see curtailed volumes and higher landed LNG costs, pressuring throughput and profitability.

 

For CGD players, Kotak flagged risks from:

• Higher input gas prices
• Potential supply cuts
• Margin pressure under regulatory and competitive constraints

In the week so far, Petronet LNG plunged over 13 per cent, Mahanagar Gas (MGL) and GAIL India tanked over 8 per cent, Indraprastha Gas (IGL) slipped over 7 per cent, Adani Total Gas over 5 per cent and Gujarat Gas 4 per cent.

Investment strategy in Oil & Gas companies 

Given the elevated geopolitical risk, supply uncertainty, rising logistics and commodity costs, and limited strategic buffers, the brokerage said the near-term risk-reward remains unfavourable, and it continues to maintain ‘Sell’ ratings on: IOCL, BPCL, HPCL, GAIL, Petronet LNG, IGL, and MGL. 

  Disclaimer: Views and recommendations are those of the brokerage/analyst and are not endorsements. Readers should exercise discretion.