War is crude, but oil supply should be safe
Last week's spike in crude oil prices after Israel's attack on Iran was the highest since Russia's invasion of Ukraine, although the threat of supply disruptions is lower in this conflict. Russia has far bigger energy exports than Iran. But the risk of the conflict spreading to the Strait of Hormuz, vital to a larger oil supply from West Asia, is unnerving the market.Spare capacity with Opec and Russia can offset the loss of Iranian output, which is principally exported to China by sea. Other Opec members like Saudi Arabia and Iraq are heavily dependent on the Persian Gulf for their oil exports. De-escalation efforts would be directed at keeping the Strait of Hormuz open, despite its strategic importance for both Israel and Iran. Threats by Tehran of widening the conflict may be hard to act upon after years of economic sanctions.Any possible maritime oil trade disruption, however, will be cushioned by adequate global oil supply that has kept a lid on prices. Opec was facing resistance over production quotas, and had to accept breaches. Energy demand forecasts await clarity from tariff negotiations between the US and its principal trading partners. Geopolitical uncertainty amid a slowing global economy is providing some upside to oil. But its effects are unlikely to be as acute as a supply shortage. Prospect of crude oil prices climbing to $100 a barrel, and staying there for an extended period, is not high if the latest conflict does not spread to other parts of West Asia.Indian disinflation has progressed far enough for monetary and fiscal policy to have turned decidedly expansionary. This may have to be calibrated to the evolving situation but may not need substantive review. India's economic momentum has been remarkably resilient through a series of shocks - Covid, energy shock and potential trade fragmentation. Despite loss of momentum, India is likely to retain its status as the fastest-growing major economy. Another energy shock appears less likely. And, possibly, less intense.
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Oil prices above $75/bbl as Israel-Iran conflict intensifies
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