Deadline For The Insurance Cover For Cargo For Strait Of Hormuz Dawns, Oil Prices Are Expected To Soar

By Neeta Kolhatkar

Mumbai: As the US-Israel war on Iran continues, with Iran now retaliating and attacking civilian and energy infrastructure in the neighbouring countries, severely impacting the oil and gas industry. The immediate impact was that both the NIFTY lost 477 points and the Bombay Stock Exchange fell by 1488 points, though the Rupee was severely hit at Rs 92.17 for a Dollar.

Among the main targets to be impacted are Aramco's Ras Tanura refinery, which was hit by a drone, and major Israeli gas fields were also hit. This prompted Qatar to halt the output of LNG and its associated products, and Iraq, too, has halved production at the world's second-largest oilfield, which is expected to affect the oil reserves for India and the rest of Asia.

Alarm bells have been sounded as Iran has shut down the Strait of Hormuz, and if the war prolongs has also now threatened to shut down the Red Sea route. This comes at a time when the framework for the Indo-US bilateral agreement was drafted by the US President Donald J. Trump, ensuring India committed to purchasing oil from the US and not from Russia. India's crude oil reserve is enough for 24 days, alongside energy products for 24 days as well.

Market analysts say India will have to go back to purchasing oil from Russia. "We will have to make alternative arrangements," Hemen Kapadia, a Research Analyst, told ETV Bharat. He also cautioned that the bigger fear is of the Rupee depreciating.

According to worldometer, a site that tracks the oil reserves globally, "India holds 4,980,857,000 barrels of proven oil reserves as of 2025, ranking #23 in the world and accounting for about 0.28% of the world's total oil reserves of 1,765,151,568,000. India's Oil Consumption was reported at 5,620,537 barrels per day, till December 2024." The data is categorised under World Trend Plus’s Association: Energy Sector – Table RB.BP.OIL Consumption.

Currently, the oil price is $80 per barrel, and if the war continues for a week or more, it is feared at increasing to $100 a barrel. "Oil prices can jump up further. Yes, if the war goes on for over a week, then there will be upward pressure on our inflation, though currently our inflation is below 4. The problem has been enhanced due to the insurance companies cancelling war risk coverage for vessels in the Middle East Gulf," Anindya Banerjee, Head of Research, FX, Interest Rates, Currency and Commodities, Kotak securities told ETV Bharat.

Interestingly, the insurance expires on March 5, which will completely halt the oil and gas movement across the Strait of Hormuz. The Asian countries are supplied via this sector, while the European countries are supplied via the Red Sea route.

Apart from Indian oil reserves, Banerjee said, "None of the countries has oil reserves beyond a month."

The pressure of purchasing oil and gas on India has also led to currency depreciation, giving rise to fears of inflation. India has recorded a Rs 2 lakh 60,000 crore forex debt, which is likely to burden the economy. "You have to pay back these amounts in dollars, and with an increase in borrowing, it is expected to impact the infrastructure projects back home," Vijay Bhambwani, CEO, Bhambwani Securities, told ETV Bharat.

Commodity experts believe there will be pressure on the US and the European countries to bring relief to the sanctions imposed on Russia, as this is the only source of oil and gas supply for the rest of the world in this ongoing war.

The post-war scenario, however, looks encouraging for the India–Middle East–Europe Economic Corridor. "Once the Iran issue is sorted, prospects for this corridor are promising. A lot of infrastructure projects are in the pipeline," said Banerjee.