Red Sea crisis: Potential disruption for India's oil imports? Here’s what analysts say...

Oil prices ticked higher on December 18 following clashes in the Suez Canal. But analysts say any gains may prove short-lived with demand still muted.

Brent crude price rise by 0.8%

Brent crude rose 0.8 per cent to $77.18 per barrel as major shippers opted to avoid the key trade artery. Suman Chowdhury, chief economist at Acuité Ratings & Research said, “We don't expect a sustained impact unless there is a larger escalation. This spike is triggered by a rebel attack and is unlikely to continue. We don't expect prices to go beyond $78 a barrel.”

What is Red Sea crisis?

The Suez Canal transports around 10% of global oil and consumer goods. Risks have climbed amid attacks on Israel-bound vessels by Iran-backed Houthi rebels in Yemen. The group hit the Liberian container ship Al Jasrah on December 15, widening targets beyond ships with Israeli business ties.

However, analysts are weighing geopolitical threats against other market factors. S&P Global noted decelerating economic growth continues to sap energy demand. Meanwhile, extra non-OPEC production limits supply constraints.

Isn't a temporary or permanent price hike? 

Swarnendu Bhushan, co-head of research at Prabhudas Lilladher, agreed the Suez clashes brought only a “temporary” price reaction. He highlighted Russia’s additional output cuts in December as a key driver of recent gains.

The attacks led shipping giants Hapag-Lloyd and Maersk to suspend their operations. MSC, the world’s largest cargo shipping company, said it would not transit the Suez Canal eastbound and westbound after its container ship, the Palatium III, was attacked. The vessel suffered limited fire damage and has been taken out of service, MSC said in a statement.

Will Red Sea crisis impact India?

So what does this mean for India, the world’s number three crude importer? Analysts suggest limited impact given its current roster of suppliers.

India increasingly relies on Gulf states like the UAE and Saudi Arabia, now the leading suppliers. Most of this Gulf oil reaches India through the Hormuz Strait, away from the Suez clashes.

Meanwhile, Russia has grown from virtually no exports to India’s largest crude provider since the Ukraine invasion began in February 2022. Its shipments transit safely to India via Arctic sea routes.

Acuité’s Chowdhury believes the Red Sea tensions won’t hinder India’s supply security unless the situation deteriorates dramatically.

Rising oil prices could also leave India unscathed. State-run retailers have not passed higher crude costs to consumers in recent months. Analysts say oil marketing companies like likes of IOC and BPCL profits may dip slightly if prices jump but the economic impact will be limited.

Bhushan concludes, “Global inventories are still adequate and demand is not strong.” So for now, only modest oil price increases seem likely despite the regional instability.