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The recent escalation between the United States and Iran is unlikely to drive commodity prices back to previous highs, with easing price pressures expected to improve operating margins for Indian manufacturers from H2FY27, according to a report by Elara Securities.
The brokerage house note, India's crude basket has fallen 51 per cent from its March 2026 peak, marking the steepest decline outside the COVID-19 period since 2012. It has attributed the sharp decline in oil prices to improving global supply and weak demand from China. Furthermor, Brent crude was trading at around USD 84.62 per barrel while crude oil was trading at USD 79.83 per barrel at the time of reporting. The report noted that US crude oil exports have risen 21 per cent since the conflict began, increasing to 4.6 million barrels per day (mbpd) from 3.9 mbpd, offsetting nearly half of the supply disruption caused by disruptions in the Strait of Hormuz. It added that the US also allowed Iranian oil exports to resume, enabling Iran to ship around 50 million barrels of crude since the blockade was lifted, equivalent to about 1.66 mbpd in June 2026. The report further noted, "Oil supply is set to increase after oil cartel OPEC+ agreed to add 188,000 barrels a day to their output target for August." Meanwhile, China's demand is yet to recover fully. Imports demand for crude oil declined 16 per cent on an average since February 2026 with May imports at 33.1mn tonne vs 48.1mn tonne in February. The Middle East conflict has sharpened China's strategic focus injecting renewed momentum into its green transition efforts. Furthermore, the overall commodity prices are cooling down with the Bloomberg Commodity Index falling 9.9 per cent correcting above 14 per cent before the reignition of conflict triggered a 6 per cent uptick over last 3-4 days, it said. "Notwithstanding the re-escalation of the Middle East conflict, we believe the peak of the crisis is behind us," it noted. The report noted that manufacturing margins historically recover with a lag after commodity prices ease. Following the commodity price spike triggered by the Russia-Ukraine war in 2022, manufacturing operating margins fell to 7.7 per cent in the September 2022 quarter from a 20-quarter high of 15.1 per cent before recovering to an average of 12.5 per cent during 2023. Based on its analysis of commodity price pass-through, Elara Capital expects manufacturing operating margins to improve by 90-100 basis points by the end of Q3FY27, provided commodity prices remain around current levels. "Falling commodity prices may lift operating margin of India manufacturers from H2FY27. Our analysis using data since 2012 indicates manufacturing operating margin and commodity prices have a negative correlation of 43%," it noted. (ANI)
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