The new episode of tension unfolding in West Asia, thanks to the Israel-Iran conflict bear ominous portents for crude prices, which, in turn, trigger concerns for inflation management in India. Iran happens to be the third-biggest crude oil producer globally.
Reports state that as first missiles rained towards both countries, crude prices jumped from $69/barrel earlier this week to $76.14 on October 2 – a leap of 10.34%. Experts apprehend the price might breach the $80 level if and when Israel retaliations hit oil sites, or worse, nuclear facilities.
10.34% leap in prices
“It is all about Middle East conflict now, when it comes to oil prices. The extent of Israel’s potential response to Iran will influence how much further geopolitical risk markets are likely to factor in,” market analyst at City Index, Fawad Razaqzada, was quoted as saying.
“The West Asia conflict remains a developing story to watch. How it could possibly impact crude oil prices, from India’s perspective, will be critical,” Yuvika Singhal, economist at QuantEco Research told News9live.
Up from 33-month low
Interestingly, the conflict began pushing the crude prices north against a backdrop of 33-month low prices of the essential energy commodity.
Alarmed, analysts said that if there is a rise in crude prices by $10, the retail inflation figures in India is pushed up by 30 basis points (or 0.3 percentage point). Crude oil is the biggest item on India’s import bill and is substantially responsible for India’s huge current account deficit.
RBI meeting next week
The development could raise concerns at the Monetary Policy Committee meeting of Reserve Bank of India on October 7-9, where voices are supposed to be raised for a cut in Repo Rates, which is now at a high of 6.5%. Only in July and August, the retail inflation figures were recorded at 3.54% and 3.65% — well below the RBI’s long-term target of 4%. Quick rise in crude prices can dash hopes of a rate cut.
Significantly, the finance ministry pegs the price of crude oil at $85 a barrel when making fiscal calculations before the budget. The implication: if crude prices breach this level, or keep marching north towards this level, frowns deepen in North Block since budgetary projections can be impacted.
Since India imports more than 80% of its crude oil requirements every year, any conflict that can raise crude oil prices is a cause for concern. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
