Oil Market in Turmoil Amid Increasing Geopolitical Tensions

In the current climate, oil trading and exploration corporations like Oil India, ONGC, BPCL, HPCL, and IOC are drawing attention given the unfolding geopolitical developments and increasing crude oil prices. BPCL witnessed a stock drop of 2.18% on the NSE, marking the figure at ?311.70 as of 1.56 pm. The steady uptick in geopolitical uncertainty is starting to rattle the oil market, as tensions simmer on a global scale.

The recent airstrikes launched by Israel on Iran have ignited concerns surrounding potential supply disturbances, resulting in a surge in crude oil prices. This has left the market in a state of heightened vigilance, as it anticipates Iran’s reaction. A potential retaliation could lead to an even steeper rise in prices, creating additional strain in an already tense situation.

These developments have the potential to escalate into a broader regional crisis, fundamentally impacting the global oil supply. In an extreme scenario, 20 million barrels per day of supply could be endangered if the Strait of Hormuz were forced to close. We’re already seeing a price hike of 10% with further escalations threatening to drive prices up by another 8-9%.

This precarious circumstance has everyone in a state of suspense, anxiously awaiting the next developments. As a result, sectors sensitive to crude oil changes, including oil marketing companies, aviation, paints, adhesives, and tyres, experienced a decline on Friday. This follows the sharp rise in global oil benchmark Brent crude prices, due to escalating Middle East tensions.

Particularly impacted was Oil India, whose shares opened at ?480 from the previous closing of ?468.35, and gained 3.31% to ?483.85 on the NSE as of 12.12 pm. More than 80% of India’s crude oil needs are met through imports. Consequently, any conflict between Iran and Israel holds the potential to send Brent crude prices skyrocketing.

Roughly 9% of the world’s oil reserves are held by Iran. Any disruption there would have a significant effect on key Indian sectors such as oil marketing companies (BPCL, HPCL, IOC, etc.), paints (Asian Paints and Berger Paints, for example), as well as the auto and cement industries. If the strains intensify and persist for over three to six months, especially if Brent crude prices rise above the USD 82–85 per barrel mark, demand may slow down or margins could face pressure in these sectors.

ONGC’s shares, meanwhile, surged by 1.36% on the NSE to ?251.26 at 11.37 am. Oil prices experienced a sudden surge, with Brent recording a high of $78/bbl following Israel’s attack on Iran. Reports stated that Israel had assaulted Iran’s nuclear programme, in the form of site and scientist attacks, leading to reported explosions in Tehran.

In anticipation of a possible retaliatory move from Iran, Israel has declared a state of emergency. Oil prices experienced a sharp recovery on Friday after Israel took a bold move, initiating strikes on Iran’s nuclear facilities. Prices had previously eased on Thursday as traders started to secure their profits following a 4% upsurge in the prior session.

That upturn had already been driven by concerns that the burgeoning Middle East tensions could disrupt supplies. The recent air attacks on Iran’s nuclear program and ballistic missile sites resulted in a renewed standoff between Israel and Iran, risking the prospect of a wider conflict. The market’s strongest reaction was evidently in crude oil; however, activities in other market segments hint at investors keeping a keen eye on how long the tension lasts and whether the scenario escalates.

Israel has stated that the operation will continue for ‘as many days’ as required to neutralise the threat, and Iran has likewise vowed a ‘harsh’ response. This action followed Israeli Prime Minister Benjamin Netanyahu’s repeated warnings about striking Iran to paralyze its nuclear program. Iran had earlier announced its plan to inaugurate a new uranium-enrichment plant in response to criticism by the UN atomic watchdog about its nuclear program.

The most significant market impact was evident in oil since Iran is a leading exporter of crude to countries like China and India. The movements in other sectors were moderately paced as investors prepared themselves for the potential of a sharper selloff. IOC shares saw a slight decline over one per cent to trade at 140.94 at 10.21 am.

ONGC shares experienced relatively less movement on the NSE at ?249.81 at 10.20 am, compared to its previous close at Rs. 247.88. The stock had a starting price of Rs. 255.55 that day. Once again, due to unfolding geopolitical concerns and rising crude oil prices, shares of oil marketing companies and oil exploration companies like Oil India, ONGC, BPCL, HPCL, and IOC have found themselves centre stage.