Week 9 Of Iran War & Oil Crisis: Is India Heading Toward Physical Supply Shortages? Experts Weigh In

Added: 2026-05-07

[00:00:00]Sonal Varma, managing director and chief economist, India and Asia ex-Japan, Nomura with us. Jonathan Barrett, chief investment officer, ETO Markets joins us today as well. Sonal, very good morning.

[00:00:10]I'm going to start with you. Um about 3 months since the whole US-Israel-Iran war began, and we have no resolution in sight. Brent at 120. How does this place India?

[00:00:26]Uh well, yeah, we are in week nine already. Uh and I think you know, clearly the energy shock is a major shock for the Asian economy, speaking more broadly, because these are major net energy importers, and a big part of this energy actually is via the Persian Gulf. And when we look at the vulnerability across Asia, I mean, it's not similar. There is a differentiated impact across different countries in Asia. Uh there are the more vulnerable ones like Thailand and Philippines, and I would put India in the top three four in terms of the energy vulnerability.

[00:01:06]So, it is clearly vulnerable.

[00:01:08]Um that said, I think actually the impact has been more manageable so far, and I would say better than expected, because there was some inventory to draw down.

[00:01:21]The government has, you know, uh and companies have contracted supplies from other players even at higher cost. We've seen energy rationing measures, increase in LPG production. So, a lot of stuff has been done on the supply side basically to enable economic activity to chug along, and things like industrial production numbers actually have held up despite the big drop in fertilizer production in the month of March. Uh now, as we go forward, I think we're now reaching that point where we need to be a bit alert in terms of the physical supply shortages starting to show up going forward. So, that is essentially, you know, one thing we are monitoring. And second, the price shock is now relatively broad-based across different energy complex, and is spilling into various other downstream industries as well.

[00:02:16]So, one will the government change fuel prices given the burden on OMCs? And two, as corporate margins are under pressure, will companies pass on a bigger share of this cost to consumers?

[00:02:30]So, I think some of these effects is what we are monitoring right now for India.

[00:02:36]All good points.

[00:02:38]On Brent crude specifically though, I I need to ask you, Jonathan, at 120, and there seems to be no panic. This is pretty much at the highest point it has been since the conflict started, in fact higher. So, what's going on?

[00:02:56]Yeah, look, I think that's a very good question.

[00:02:59]And we're just trying up through 121, 121 and a half at the moment. I think it's a combination of events which have caused this. Obviously, what Donald Trump has come out and said this could go on forever.

[00:03:10]Whilst it's going on forever, limited supply goes through the market, through the straits. That becomes an issue.

[00:03:15]We've got a crisis in in OPEC, obviously, with UAE sort of take taking taking itself out of that.

[00:03:23]Will that Will we see more members make the same decisions to determine their own future? So, there is this general feeling in the market that that the prices just trading high because there's no clear direction in how we're going to resolve it. And to your point earlier, Trump was saying, "Oh, look, we're not going to travel anywhere 18 18 hours to have a discussion." I mean, those sorts of comments don't add strength to the fact that they're trying to resolve the issue. So, yes, very well bid at the moment, and it's going to play out in the inflation numbers going forward.

[00:03:58]Uh good morning, Jonathan and Sonal.

[00:04:00]Sonal, let me come to you first.

[00:04:02]Let's Let's Let's club this in with regards to what's happening with crude, as Alex just mentioned. We are at $120, and there is no sign of really any alarms that are ringing right now. Now, to add to that, in India you have the state elections, which probably will be behind us now already.

[00:04:21]Do you think the government will use this opportunity, Sonal, to go ahead and hike crude price I mean, oil prices? And this will be at retail level number one.

[00:04:31]And two, with the data that the exit polls are indicating right now, what direction are you seeing private capex move then?

[00:04:42]Yeah.

[00:04:43]Um so, I think like the com the official comments from the government side has been fairly clear that they do not intend to hike pump prices even after the state elections are over.

[00:04:58]Now, we know that the under-recoveries for oil marketing companies on petrol, but most particularly importantly on diesel, has been rising. It was close to 40 rupees per liter on our estimates for diesel about a week back, and it would have gone up in recent days. So, the losses for OMCs continue to rise. So, I think it's sort of a tough, you know, tussle between the government wanting to keep stability in prices for the broader consumers versus the losses for OMCs, which ultimately will show up in terms of the higher fiscal burden.

[00:05:38]It is possible that, you know, if the view from policy officials is that the conflict, and particularly, you know, the elevated oil prices may be with us for a month or two more, beyond which it will settle down at a, you know, level which can be accommodated, then they may not immediately hike fuel prices even after state elections, but wait it out for a month or so to see whether this is more longer-lasting or not.

[00:06:09]And two is, you know, if there is a decision to hike, I mean, it could be more gradual once that decision is made.

[00:06:19]So, at this stage, just looking at the official statements, it looks like a hike may not be imminent, but it's something we need to monitor because the burden on the fiscal side is basically increasing quite significantly if prices aren't changed and oil stays here.

[00:06:38]On the state election impact on private capex, I think that's a regional phenomena. So, depending on what the final results are, if there is a bigger push towards, you know, industrial transformation and infrastructure spending in some of the eastern states in India, then those pockets in East India could become a source of growth.

[00:07:04]But otherwise, I think you know, key drivers of private capex are more broader in terms of the demand assessment, cost of capital, and of course, the uncertainty companies are dealing with right now on the energy shock.

[00:07:20]Uh certainly.

[00:07:22]In fact, there's so many things that we will talk to you about in the next couple of weeks. Hopefully, the conflict will resolve by then. But Sonal, Jonathan, thanks so much for taking the time and for speaking to us this morning.