Mideast Fallout: Oil Price Soars Past $100 A Barrel, Experts Say Worst 'Quantity Shock' Since 1970s

By Neeta Kolhatkar

Mumbai: As the Iran-Israel-US war entered its 10th day, markets across the world opened to a gloomy Monday in reaction to the crude oil prices soaring past $100 a barrel and then further zooming to $120 within minutes. This is being termed as a 'quantity shocker' by commodity experts, last seen in 1973 during the Arab-Israeli war.

"This is a very different scenario we are witnessing. It is what we term a quantity shock in the oil market. It has not happened since 1970," Anindya Banerjee, Head of Research, FX, Interest Rates, Currency and Commodities, Kotak securities told ETV Bharat.

The oil prices since the beginning of this year have been at $60 a barrel. On February 27, the day before the US-Israel strike on Iran, the crude oil prices were at $71 per barrel. After Iran shut down the Strait of Hormuz, the oil prices spiralled from $77 to $92 on March 6. From Monday morning began the shocker, as prices opened at $92, then $112 and later went to $120 per barrel.

How the Middle East conflict can raise food prices. (ETV Bharat Graphics)

Commodity experts say 2022 was a "mere disruption" after the Russia-Ukraine conflict, when oil went to $125 per barrel. "It was a disruptive moment only. The minute the exports were streamlined, the flow was back in place. This is an actual disruption," said Banerjee.

He added that most companies can consume from their inventories, but these stocks are limited and can be depleted. "Every week from now will be crucial as it will have a metric impact, as every oil company will begin consuming from their inventories. One can keep consuming from one's inventory, and it will help save from the price shock. However, the longer this closure of the Hormuz Strait continues, every week we will see a severe impact."

Strait of Hormuz, the world's most critical oil chokepoint. (ETV Bharat Graphics)

The immediate reaction was seen on the stock markets globally, as investors showed their reaction, with markets in South Korea hitting the circuit breaker.

Experts said this could be just the beginning, as along with oil imports, everything India imports will be adversely impacted, as it is a chain reaction.

"We are going to be hit by imported inflation. Everything we import will get more expensive henceforth. This will also lead to a further fall in the rupee. We are also seeing the markets falling and the cost of funds will go up," said Vijay Bhambwani, Founder-Promoter, Bhambwani Securities Pvt Ltd and a Commodities Research Analyst.

The increase in crude oil prices has a cascading effect on LNG, fertilisers, urea, fruits, grains, vegetables and all consumer items that are imported by India. It is considered adverse even for the development sector, as aluminium prices have risen.

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