Oil demand is largely inelastic, which means consumption does not fall easily even when prices rise. However, the impact varies across regions. For India, the implications are far more serious given its heavy dependence on imports, which account for nearly 90% of its oil needs.
Oil tensions escalated further after Iran warned that the world should be prepared for oil at $200 per barrel. U.S. President Donald Trump has also avoided committing to a timeline for ending military operations, suggesting the conflict could drag on. Crude is already trading above $100 per barrel, a sharp jump from around $60–62 levels seen before the war began on February 28.
That said, a move to $200, while not impossible, remains uncertain. At extreme levels, high prices tend to trigger demand destruction and bring alternative supplies into play. Jigar Trivedi of IndusInd Securities believes such a spike is a low-probability scenario. According to him, oil would need a major global supply shock to reach those levels, such as a large-scale conflict in the Middle East, severe disruption to shipping through the Strait of Hormuz, coordinated production cuts by OPEC, or sanctions removing millions of barrels from global supply. Demand alone is unlikely to drive such a surge without meaningful supply constraints.
From a market standpoint, the biggest losers are likely to be oil refiners, downstream companies and gas players. Elara Securities notes that beyond $110 per barrel, the buffer begins to wear thin.
Oil marketing companies such as HPCL, BPCL and Indian Oil are the most vulnerable, the domestic brokerage said in a note. Higher gross refining margins may offer some cushion, but they are unlikely to fully offset the hit from shrinking retail margins and rising LPG losses. At current Brent levels of around $100 per barrel, earnings could decline sharply, in the range of 90% to 190%, unless there is a fuel price hike, tax cuts or higher LPG subsidies.
Earlier this month, UBS downgraded the 3, citing growing uncertainty around earnings as crude prices climb amid the ongoing conflict. The brokerage drew parallels with the disruptions seen during 2022, highlighting how rising geopolitical tensions can quickly destabilise the earnings outlook for state-run oil marketing companies.Mukesh Ambani-led Reliance Industries presents a more balanced picture, Elara added. While higher crude prices can lift refining margins, the gains are partly offset by hedging. For every $10 per barrel increase in crude, refining margins are estimated to rise by about $2.5 per barrel. At the same time, elevated prices support stronger earnings from its upstream oil and gas business. This diversified exposure makes Reliance less volatile.
For upstream players, the upside is more limited than it appears. ONGC is unlikely to fully benefit from higher global prices, as realisations for public sector upstream companies are effectively capped at around $80 per barrel, similar to the trend seen after the Russia–Ukraine conflict. In addition, weaker performance at HPCL could weigh on its consolidated earnings.
In contrast, Oil India appears better placed in a high crude price environment. The company benefits more directly from refining margins at Numaligarh Refinery, which could translate into stronger consolidated performance when prices remain elevated.
Gas companies face a different set of risks. Around 66% to 69% of India’s LNG imports pass through the Strait of Hormuz, making supply disruptions a key concern. Petronet LNG has the highest exposure, with about 77% of its volumes linked to the route, while Gujarat State Petronet has around 62% exposure. GAIL is relatively better positioned, with only about 16% of its gas marketing volumes and around 30% of transmission volumes exposed, thanks to a more diversified sourcing strategy. For these companies, the primary risk lies in volumes rather than margins.
While industrial gas price increases are typically passed on, availability could tighten sharply at higher crude levels. Supply to industrial users may fall by about 25%, 50% and 75% if crude reaches $100, $125 and $150 per barrel respectively. Over the past two years, only about 75% of CNG cost increases have been passed on, limiting pricing flexibility. As a result, industrial demand is likely to weaken significantly. Gujarat Gas appears most exposed, with nearly half its volumes tied to industrial demand, while Indraprastha Gas and Mahanagar Gas are better insulated due to higher exposure to CNG and household consumption.
Where is oil headed from $100?
Looking ahead, crude prices could move higher from current levels. According to Kayanat Chainwala of Kotak Securities, oil may rise to $120 per barrel in the near term and potentially touch $150 if the conflict continues beyond a month and geopolitical tensions remain elevated.
Nuvama Institutional Equities echoes the same view. The continued closure of the Strait of Hormuz, which handles around 20 million barrels per day, could push crude prices to the $110–150 per barrel range over the next 4-8 weeks. While the release of strategic reserves may provide some near-term relief, it could also lead to a rebound in demand as inventories are restocked later. Broader stress is likely to emerge beyond $125 per barrel. Oil marketing companies could see sharp earnings pressure, LPG subsidy burdens may rise significantly, and risks to LNG throughput could increase. In such a scenario, the likelihood of policy intervention also rises. Overall, the first $40 per barrel increase in crude can typically be managed through tax adjustments, but beyond that, the strain on the system becomes more visible, Elara said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)