New Delhi: The Indian crude oil basket has moved past USD 100 a barrel for the first time since May, reaching USD 101.07 on September 4, according to industry data. The move follows a weekend of exchanges between American and Iranian forces around the Strait of Hormuz that has pushed international benchmarks to their highest levels in six weeks and thinned traffic through the waterway to its lowest since May.
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Brent crude was trading at about USD 97.17 a barrel at 13.33 GMT on Monday, up 0.92 percent or 89 cents, after touching USD 97.93 earlier in the session. West Texas Intermediate (WTI) stood at USD 92.27, up 79 cents. Both had settled lower on Friday, Brent at USD 96.28 and WTI at USD 91.48, and Monday's session was thinned by the US holiday.
American forces struck three Iranian oil tankers on Saturday, one of them near Kharg Island, Iran's main crude export terminal, with the others reported near Jask and in the Gulf of Oman. One vessel was hit in multiple locations and its crew abandoned ship. The US described the tankers as part of a multibillion-dollar shadow network funding Iranian forces, and said the strikes answered two ballistic missiles fired by the Islamic Revolutionary Guard Corps (IRGC) at American Navy warships. No US personnel were hurt in the missile attack, according to the US military.
Iran's foreign ministry called the strikes a violation of international law. The IRGC said it had in turn hit three tankers using unauthorised routes through the Strait of Hormuz along with three US-linked vessels elsewhere, and Lieutenant Colonel Ebrahim Zolfaghari warned that Iranian forces would respond more severely if American attacks continued. Saudi Aramco's Jazan refinery was attacked on Monday, with the damage still being assessed.
Maritime intelligence firm Marisks said the pattern of attacks marks a shift in the conflict. "Commercial tankers are now being deliberately used as instruments of reciprocal economic pressure, substantially weakening the previous distinction between military confrontation and commercial shipping," it said.
Iran has signalled that it intends to extend its reach past the chokepoint itself. Major General Mohsen Rezaei, Secretary of Iran's Supreme National Security Council (SNSC), said in a televised interview on Sunday that Tehran would declare a restricted maritime zone beginning at the US Navy's blockade line and running into parts of the Persian Gulf, covering the stretch towards loading ports. Vessels entering without coordinating with Iran "will face sanctions with consequences for insurance and future passage," he said. He gave no coordinates for the zone, and it is not clear what mechanism Iran would use to enforce it.
Rezaei also said a memorandum on a new corridor through the Strait of Hormuz would be signed in the coming days, with management of it under Iranian control. He described the strait as "completely closed and under the control of the armed forces." US Energy Secretary Chris Wright has said Washington will maintain its naval presence and blockade, which is aimed at limiting Iranian oil exports while allowing safe commercial passage.
Shipping has already thinned out sharply. An average of only 10 commodity vessels a day passed through the strait over the past 10 days, the lowest rate since May, according to data from Kpler.
For Indian refiners and marketers, the pressure runs straight through to the pump and the cylinder.
"The renewed hostilities between Iran and US, pose a challenge for the limited crude oil supplies coming through the Strait of Hormuz. Further, as Iran threatens to establish a new restricted maritime zone extending beyond the Strait of Hormuz, additional energy flows beyond the latter could be at risk. Owing to these developments, crude oil prices have increased in the past few days and Indian crude basket has crossed the USD 100/barrel mark. As a result of the surge in crude prices, marketing margins on auto fuels are likely to turn negative and domestic LPG under recoveries could increase from the current ~Rs 200/cylinder," said Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA Ltd.
The cost of bringing crude in has been climbing for months. India's crude import bill rose 60 percent in the April-June quarter against the same period a year earlier, and July's bill was 41 percent higher year on year. Freight rates from Saudi Arabia's Ras Tanura to India have risen more than 400 percent since late February.
Where prices go next depends on whether the tanker attacks continue. Goldman Sachs has said crude could rally to USD 120 a barrel if attacks on Middle Eastern shipping intensify, and that a normalisation of exports could pull it back towards USD 80.
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Priyanka Sachdeva of Phillip Nova pointed to vessel movements as the variable to watch. "If tanker traffic begins to slow materially, the market could price in a much larger supply shock," she said.
