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Below the Perspective on Oil Geopolitics and Macro by Ms. Madhavi Arora, Chief Economist, Emkay Global Financial Services 

Oil Geopolitics and Macro

* Oil prices spiked with Brent up to $78/bbl after Israel attacked Iran, stating it has struck the nuclear program (sites and scientists) and explosions being reported in Tehran. Israel has further declared state of emergency, expecting retaliation from Iran. Trump has warned of chance of a massive conflict though US denied any involvement in the Israeli attacks. Trump earlier stated Israel may attack Iran.

*  Talks on a nuclear deal between US and Iran was going on but in last few days the same seems to have soured and Iran stated if it is attacked it would retaliate against US bases in Iraq etc and US asking some of its personnel there to exit. Reports suggested Iran was within days to develop 15 nuclear bombs.

* Iran produces ~3.3mbpd (~3% of global) of crude oil and exports ~1.5mbpd with China being the main importer (80%), followed by Turkey etc. Iran is also on the northern side of the Strait of Hormuz/Persian Gulf through which 20mbpd+ of oil trade flows with Saudi, UAE etc also shipping and in the past it has warned of blocking the same.

* Hence a wider Middle East conflict with impact on Saudi, Iraq, Kuwait and UAE oil supplies can lead to sharp spike in oil prices. With US China trade conflict, China didn’t adhere to western sanctions on Iran and kept buying the same though in last few months it was reported they reduced intake. India doesn’t import any Iranian oil.

* There is risk of this escalating though earlier also once Israel attacked Iran with the latter retaliating and both claiming success and denying major damage and the tensions faded. However in this case more details are awaited and in the near term oil would be highly volatile.

Macro impact

* We have $70/bbl Brent assumption for FY26 with Q1FY26 likely to average at $67-69/bbl With

* With OPEC+ announcing another higher than expected production hike in July, fundamentally oil markets remain well supplied and further Iranian supply cuts can be accommodated.

* As of now, we are not changing our forecasts and continue to see CPI inflation undershooting RBI’s estimate of 3.7% to average much lower 3.3-3.4% in FY26. We note every $10/bl increase in oil leads to annualised gain of 35 bps in CPI inflation.

* We maintain FY26E CAD/GDP at 0.8%, at Brent 70/bbl, with every 10$/bbl leading to upside risk of 0.4-0.5%, ceteris paribus

* Our FY26 Growth est at 6.0% could see a downside risk of 16-20bps if oil averages $80/bl through the year vs $70/bl assumed

* Our  Energy team maintains a positive view on OMCs on the back of strong marketing margins and core GRMs also holding up and up to $75/bbl Brent for remaining part of year our estimates don’t see downside risks.

Above views are of the author and not of the website kindly read disclaimer