Brent crude oil has rocketed to $98 per barrel, its highest since August 2022, after Iran’s military escalation with Israel and the US raised the specter of a supply disruption through the Strait of Hormuz — the world’s most critical oil chokepoint. WTI crude hit $94. The question on every trader’s mind: is $120 oil next?
Why This Is Different from Previous Iran-Israel Tensions
In April 2024, Iran launched drones at Israel but both sides de-escalated within days, and oil barely moved. This time is fundamentally different:
- Direct US military involvement: The deployment of two carrier strike groups signals this isn’t a one-off exchange but a sustained confrontation
- Strait of Hormuz threat: Iran’s Revolutionary Guard has positioned fast-attack boats and anti-ship missiles near the strait. 20% of global oil supply (20 million bpd) passes through this 30-mile-wide corridor
- No diplomatic off-ramp visible: Unlike April 2024, back-channel communications between Iran and the US have broken down
- Houthi escalation: Iran-backed Houthis in Yemen have intensified attacks on Red Sea shipping, adding another supply disruption layer
Oil Supply Scenarios
Scenario 1 — Contained Conflict (50% probability): Military strikes remain targeted, Strait of Hormuz stays open. Oil settles between $90-100. Markets gradually calm.
Scenario 2 — Hormuz Disruption (30% probability): Iran mines or blockades the strait even partially. Immediate loss of 5-8 million bpd. Oil spikes to $120-140. Global recession risk surges.
Scenario 3 — Full Regional War (20% probability): Conflict engulfs Saudi Arabia, UAE, and other Gulf states. Oil above $150. 2008-style global economic crisis.
Impact on India
India is extremely vulnerable to an oil shock:
- At $98 oil, India’s annual import bill rises to $220 billion (from $170B at $73 oil)
- Current account deficit widens to 3.5%+ of GDP
- Petrol could hit Rs 120/liter and diesel Rs 115/liter if the government passes through costs
- CPI inflation could spike to 6.5%+, forcing RBI to halt rate cuts and potentially hike
- GDP growth forecast cut from 6.7% to 5.8-6.0%
How to Position
- Buy: ONGC, Oil India (upstream producers benefit from higher realizations)
- Buy: Gold (classic war hedge — already at Rs 92,000)
- Sell/Avoid: Airlines, paint companies, OMCs (HPCL, BPCL, IOC)
- Hedge: Buy Nifty put options for portfolio protection