Crude oil prices could take six months to a year to return to pre-war levels even if the Strait of Hormuz reopens after a peace deal between the US and Iran, as restoring oil production and repairing damaged energy infrastructure in the region will take time. Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings at ICRA Ltd, said the more than 90-day conflict in West Asia has resulted in substantial production losses and damage to oil facilities, limiting the scope for an immediate correction in prices.
"In case of a successful US-Iran deal and subsequent normalisation of the vessel traffic through the Strait of Hormuz, crude oil and natural prices would ease. However, beyond the immediate price action, crude prices could take six months to one year to normalize to pre-war levels given that almost 10-11 million barrels per day of production has been shut in West Asia besides which some facilities have suffered damages. Additionally removal of sanctions on Iranian crude would be positive for India given the geographical proximity as well as higher credit period offered historically, if the same terms continue,” said Vasisht.
The Strait of Hormuz, through which around 20% of global oil supplies pass, remained largely disrupted for more than 90 days, significantly affecting the movement of crude oil and natural gas cargoes. The disruption pushed international crude prices as high as $125 per barrel from pre-war levels of around $70-$75 per barrel.
Following the peace deal announcement, Brent crude fell 4.92% to $83.03 per barrel, while US WTI declined 5.49% to $80.22 per barrel as of 6.08 pm IST.
India, which imports nearly 88% of its crude oil requirements, is heavily dependent on the Strait of Hormuz, with the route accounting for about 40% of its crude oil imports, 50% of LNG imports and 90% of LPG imports.
The average price at which Indian refiners imported crude oil rose to $106.23 per barrel in May. India's oil import bill surged 52.3% to $16.3 billion in April from $10.7 billion in the year-ago period, as crude traded above $100 per barrel for most of the month amid the Iran conflict, according to the latest data from the Petroleum Planning and Analysis Cell (PPAC).
According to an Emkay report, the normalisation of supplies through the Strait of Hormuz could take weeks, if not months, as tanker availability, insurance costs, mine clearance operations and other logistical constraints are expected to slow the resumption of trade flows. The report also noted that restarting production at shut oil fields would require additional time.
While Brent crude prices have fallen below $85 per barrel following the peace deal announcement, Emkay believes there remains a significant risk of prices moving back towards or above $90 per barrel in the coming weeks due to supply normalisation delays and the return of pent-up demand.
However, the brokerage expects prices to correct meaningfully in the second half of FY27 and fall to around $70 per barrel by the end of FY27. Given the likelihood of elevated oil prices during the first half of FY27, Emkay has maintained its FY27 Brent crude forecast at $90 per barrel.
Meanwhile, the government remains confident that energy supplies to India will improve if the situation in the Strait of Hormuz stabilises.
According to Sujat Sharma, Joint Secretary in the Ministry of Petroleum and Natural Gas, resolution of the disruption in the Strait of Hormuz would benefit all energy-importing nations by improving supplies.
With the decline in crude oil prices, Sharma noted that under-recoveries incurred by state-run oil marketing companies on diesel have declined to ₹27 per litre from ₹30 per litre, while under-recoveries on petrol have fallen to around ₹3 per litre from ₹6 per litre earlier.
However, LPG under-recoveries continue to remain close to ₹700 per cylinder, she said.
Opesh Sharma, Director in the Ministry of Ports, Shipping and Waterways, said that an Indian vessel named Disha, carrying 62,370 metric tonnes of LNG, is scheduled to arrive in India on June 18.