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A combination of elevated crude oil prices and a weakening rupee could intensify inflationary pressures in India and weigh on domestic money-market conditions if the conflict in West Asia leads to prolonged disruptions in global oil supplies, according to Emkay Wealth Management.
In its latest Navigator report on Brent crude, Emkay said the impact of the conflict on oil-importing economies could extend beyond higher crude prices, with currency weakness potentially amplifying the pressure on the domestic economy. "For India, the risk is not limited to higher crude prices," said Dr Joseph Thomas, Head of Research at Emkay Wealth Management, adding that a weaker rupee alongside elevated oil prices could magnify the domestic impact. The report said it would be premature to assume that the impact of the conflict on oil prices would necessarily be transitory, as uncertainty over the duration of hostilities and restoration of normal supply routes continues. Brent crude had surged from around USD 75 a barrel to nearly USD 98 following renewed hostilities before moderating as statements indicating the possibility of diplomatic progress emerged. However, uncertainty over a sustained ceasefire continues to keep the oil market volatile. Emkay identified disruption to the Strait of Hormuz as a key risk, given that roughly 20 per cent of global oil flows pass through the route. It also flagged the Red Sea and the Bab el-Mandeb Strait as other critical transportation routes where disruption could add pressure on global oil supply chains. The report said crude prices are likely to remain sensitive in the near term to the intensity and duration of the conflict, developments around ceasefire negotiations and the speed at which normal supply channels are restored. However, Emkay sees a different force emerging over the medium to long term. It said global oil supply is expected to grow at a relatively faster pace than demand, which could put downward pressure on crude prices once geopolitical risks ease and supply routes normalise. According to the report, a quick resolution to the conflict could help contain the impact on crude prices, while prolonged disruptions could keep oil elevated and increase pressure on inflation and economic growth. Oil markets will remain particularly sensitive to ceasefire negotiations, security of shipping routes, inventories and changes in production and exports, it added. At the time of filing this report on Friday, Brent crude futures were trading at around USD 88.29 a barrel, down about 0.3 per cent for the session. (ANI)
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