Strait Of Opportunity: How Russia Will Benefit From Middle East Conflict, Aiding India

The possibility of Israel hitting Iran is not ruled out; rather, it's imminent given Israel's past history since its inception. However, what is even more compelling is Russia's potential to benefit from the ensuing blockade of the Strait of Hormuz if Israel strikes Iran, which in turn benefits India indirectly.

Whether Israel hits the oil wells, storage tanks, or Iran's nuclear sites, the biggest casualty is expected to be the Strait of Hormuz, from where 27% of the world's trade in crude oil happens.

Iran, Saudi Arabia, Iraq, Kuwait, Oman, and Qatar—where the world produces 32% of crude oil—use the Strait of Hormuz to transport the most sought-after resource to the largest economies, including India, China, the Far East, and parts of Europe.

The blockade will bring these economies to a halt. A full-fledged war may not be in the best interest of anyone, as it would significantly increase the turnaround time for imports from distant destinations in North America or Latin America, in addition to increasing their cost.

The possible situation may present an opportunity for a country that is fairly aligned with Iran but would gain the most if Iran blocks the Hormuz Strait—Russia!!

North America—Mexico and the USA—and Latin American countries, including Venezuela, Colombia, Brazil, and other OPEC+ countries, may not be able to support the demand from India, China, and the Far East in such emergency conditions due to proximity and cost-related issues.

Such a situation could result in the crude price surpassing $100 per barrel once more, potentially providing an opportunity for Russia to assist India, as it did following its attack on Ukraine.

The US and European Union have agreed to cap the Russian crude oil imports at $60/bbl. In situations where crude prices will shoot above $85 per barrel, Russia and India will look at each other once more to keep their economies from cracking under duress.

India may not worry about the impending situation. In case of blockade, India can definitely turn to Russia if crude crosses $85 and goes beyond $100 per barrel. Although Russia may increase the price proportionately, it would not be as high as the prevailing prices, said Madan Sabnavis, chief economist of Bank of Baroda.

He said that India is not dependent on any one source or geography for crude oil supply. Any increase up to $85 per barrel is manageable, as India now gets oil from Iraq at even lower rates compared to Russia, while Saudi Arabia price is only marginally higher.

Sumit Pokharna, senior oil sector analyst and vice president at ICICI Securities, concurs. "It is possible India would once again seek a $10-13 per barrel discount and would most likely secure the deal given the mutual needs," he said.

However, there are some who believe it is best to refrain from any conclusions till war happens. The Iranian ambassador to India has asked the Indian government to use their best offices with Israel to restrain from attacking Iran.

Anish De, KPMG's partner in oil and gas, said it was too early to take a look. While there has been a short-term surge in the price of crude oil, it has not been abnormal, he said. "It is very difficult to forecast the course of the war now. If the effects are contained, I do not see any major impact. If it spreads regionally and affects supply chains, then the effect can be quite significant and extensive. At this time it is best to hold off from any conclusions," he said.

In September 2024, India imported around 38% of its total crude oil requirement from Russia at 1.79 million barrels per day, compared with 1.61 million barrels per day in August.

According to data from energy cargo tracker Vortexa, Iraq ranked second at 8,94,000 bpd, while Saudi Arabia ranked third at 6,88,000 bpd.

India's total crude oil imports in September were up 12.7% month-on-month to 4.7 mbpd of crude oil per day.