Tehran has warned of strong retaliation after the news of the death of Iran’s Supreme Leader Ayatollah Ali Khamenei, which was confirmed by Iranian state media today. US President Donald Trump said that the 86-year-old leader died on the first day of major joint air strikes.
Increased concern over oil supply
More than 20% of the world’s total oil supply passes through the Strait of Hormuz, which connects the Persian Gulf to the Gulf of Oman and the Arabian Sea. Due to heavy missile attacks in this area, the possibility of supply being affected has increased, due to which oil prices have increased.
US WTI crude rose 3.19% to $ 67.29 per barrel, while Brent crude reached $ 72.87 per barrel on Friday. There is increased concern in the market due to the fear of war increasing in the Middle East over the weekend.
Oil may cross $100: Barclays
Britain’s second largest bank Barclays has increased its estimate of Brent crude to $ 100 per barrel. According to the bank, the market may face a major shock due to the worsening security situation in the Middle East and the threat of supply disruption. The situation has become more serious after the attacks by America and Israel and retaliation by Iran. Khamenei’s death has increased concerns in global markets.
The oil market first panics, then calms down.
According to Equirus Securities, oil prices often jump 25% to 300% during geopolitical crises, even if the impact on supply is temporary. Generally, at first the prices rise rapidly and later the market gradually returns to normal levels. Brokerages say the real challenge is not to predict the initial bounce, but to understand how long the crisis will impact prices.
Big shock if Hormuz is affected
If there is disruption in the Strait of Hormuz, oil may add additional geopolitical premium of up to $2040 per barrel and prices may go up to $95110.
What will be the impact on India?
India is heavily dependent on the import of crude oil, hence there is a danger of inflation increasing due to the cost of oil. This may also increase the burden of current account deficit and government subsidies. However, experts say that India has diverse import sources, strategic reserves and sufficient stocks, which can handle short-term shocks.
impact on stock market
Shares of Oil Marketing Companies (OMC) will be under watch on Monday amid expectations of increase in the price of crude oil. Shares of refinery companies may rise. Shares of tire and paint companies will also be in focus, because petroleum-based raw materials are used in these industries.