Rising Tensions in West Asia and Their Geopolitical Impact
New Delhi: The ongoing tensions in West Asia, particularly the Israeli bombing of Iranian nuclear sites and the subsequent Iranian retaliation, have significantly heightened geopolitical temperatures across the region.
Amidst the escalating tensions, global crude oil prices are experiencing a continuous surge. The ongoing conflict between Iran and Israel, coupled with threats to close the Strait of Hormuz, has pushed crude oil prices above $75 per barrel. This situation has dealt a blow to the global energy market, but it could also present a golden opportunity for some Indian companies.
While rising crude oil prices are usually a cause for concern for an oil-importing nation like India, several domestic companies in the oil and gas sector are likely to benefit. A recent report by brokerage firm JM Financial highlighted companies whose share prices could see an upswing due to this price increase.
Oil Price Increase and Stock Market Trends
According to JM Financial, a $1 per barrel increase in crude oil prices could lead to a roughly 1.5 to 2 percent increase in the per-share profit of companies like Oil India and ONGC. This is primarily because these companies are oil producers themselves, and as crude oil prices rise, their margins strengthen.
ONGC and Oil India are both leading public sector oil producers in India. Their profits were impacted after the government implemented a windfall tax in 2022, but the government removed this tax in late 2024. This directly allows these companies to retain a larger portion of their earnings.
Companies Likely to Benefit
Analysts suggest that the following companies could directly benefit from rising oil prices:
- Oil India Limited
- ONGC (Oil and Natural Gas Corporation)
- BPCL (Bharat Petroleum Corporation Limited)
- HPCL (Hindustan Petroleum Corporation Limited)
- IOCL (Indian Oil Corporation Limited)
However, the benefits to these companies might be impacted differently. For instance, while ONGC and Oil India are production-based companies and directly profit from rising prices, companies like BPCL, HPCL, and IOCL are involved in refining and marketing, which could see increased costs.
Brokerage House Opinion
In its report, JM Financial gave ONGC a 'buy' rating, advising investors to purchase this stock. On the other hand, HPCL and IOCL received a 'sell' rating, suggesting investors should avoid these shares for the time being. BPCL received a 'hold' rating, meaning investors should neither buy nor sell it currently.
Impact of Government Policy
However, the profitability of these companies will also depend on the government's policy response to the increase in crude oil prices. If oil prices rise significantly, the government might reduce excise duty to lessen the burden on consumers or ask companies to control retail prices. This could impact the margins of these companies.
Conversely, if prices fall, the government might increase excise duty to balance revenue. Therefore, the movement of oil company shares will depend not only on prices but also on policy changes.
Geopolitical Developments and Risks
The tensions between Iran and Israel are not only affecting crude oil prices but could also jeopardize the global supply chain. The Strait of Hormuz is the world's busiest and most important oil transport route. If Iran closes it, it could severely disrupt global crude oil supply, causing prices to rise further.
This situation could be challenging for India, which imports approximately 85 percent of its oil needs. However, domestic oil producing companies could also benefit from this situation.
