Iran-Israel conflict: Crude oil jumps on supply fears, will it impact India?

As tensions escalate in the Middle East, a region that plays a critical role in global oil production, concerns over potential supply disruptions have driven prices higher.

In Short

• Iran-Israel conflict pushes crude oil prices higher amid tensions
• Rising US crude inventories limit gains despite Middle East conflict
• Brent crude oil increases to $75, boosting India's oil stocks

The ongoing conflict between Iran and Israel has had a noticeable impact on crude oil prices.

As tensions escalate in the Middle East, a region that plays a critical role in global oil production, concerns over potential supply disruptions have driven prices higher.

However, rising US crude inventories have tempered some of these gains, leaving the market in a state of volatility.

Trivesh D, COO, Tradejini said surprisingly, the US and European markets have remained flat, but the impact is starting to show elsewhere, especially in the energy sector.

"Brent crude oil has risen to $75 a barrel from $70, boosting oil stocks in India. However, the broader Indian market is flashing red.
Rising oil prices could add pressure on India's fiscal deficit, forcing the government to reallocate funds from key infrastructure or public welfare projects to cover the higher costs," he added.

Impact of Middle East tensions on crude oil

The conflict between Israel and Iran, which escalated after Israel’s bombing of central Beirut in response to Iranian missile attacks, has raised fears of a broader regional war. The attacks struck key areas, including the southern suburb of Dahiyeh, a stronghold of Hezbollah.

These developments have led to concerns that the conflict could affect oil supplies from the Middle East, a region that contributes significantly to the world’s crude production.

Prathamesh Mallya, Vice President of Research at Angel One Ltd, explained that crude oil prices have been trading higher primarily due to worries that the escalating conflict could threaten oil supplies.

"Overall, the crude prices are trading higher on worries that the escalating conflict in the Middle East could threaten oil supplies from the world's top producing region, but a large build in US crude inventories limited gains," Mallya said.

US crude inventories offset gains

While geopolitical tensions usually push crude prices higher, a recent report from the US Energy Information Administration (EIA) showed an unexpected rise in US crude inventories. This increase has offset some of the upward pressure on oil prices caused by the conflict.

According to the EIA, US crude inventories rose by 3.9 million barrels to 417 million barrels for the week ending September 27. This was in stark contrast to market expectations, which had predicted a 1.3 million-barrel decrease. The larger-than-expected build in inventories has helped keep crude prices from surging further.

"Crude prices are likely to trade lower as US crude inventories rose by 3.9 million barrels," Mallya added, pointing out that the increased stockpiles are keeping a lid on any major price jumps.

Market volatility driven by geopolitical and supply factors

Crude oil has been particularly volatile in recent days. Rahul Kalantri, Vice President of Commodities at Mehta Equities, noted that oil prices surged by more than 5% in the international market over the past two days. This sharp rise was largely driven by the escalating conflict in the Middle East.

"Iran’s missile attacks on Israel on Tuesday intensified regional concerns, driving oil prices higher. Israel’s threat of retaliation, particularly if it targets Iran’s oil infrastructure, could further support rising prices," Kalantri explained.

He also highlighted the role of OPEC+ in stabilising the market, as the group concluded its meetings with plans to increase output starting in December.

Kalantri also provided key technical insights into the crude oil market, noting that "key support levels for crude oil are at $69.55–68.90, with resistance at $71.70–72.40." In terms of Indian rupees, he noted that "support is at Rs 5,880–5,800, while resistance stands at Rs 6,050–6,140."