US-Iran deal eases oil, but India's petrol relief may take longer

The US-Iran deal has reopened the Strait of Hormuz and cooled crude prices. But India may not see immediate fuel relief as supply chains and inventories recover.

In Short

• Brent crude falls to around $83 after the US-Iran framework agreement
• West Aisa conflict removed about 1 billion barrels from global oil supply chains
• Strategic stock releases and weaker Chinese buying helped steady markets

A US-Iran agreement has raised hopes that the Strait of Hormuz, the world's most critical oil shipping route, could reopen after June 19, bringing relief to global energy markets.

Brent crude has already fallen sharply from its peak of $118 per barrel during the conflict to around $83 on expectations of smoother oil flows.

But for Indian consumers waiting for cheaper petrol and diesel, the road to relief may be much longer.

The reason is that the three-and-a-half-month conflict did not just push up oil prices. It disrupted one of the biggest energy supply chains in modern history, removing around 1 billion barrels of crude and refined products from the market and leaving nearly 20% of global LNG supplies affected.

Restoring normal trade flows, rebuilding inventories and increasing production could take time.

THE OIL WAR MAY BE OVER, BUT THE CLEAN-UP HAS JUST BEGUN

The closure of the Strait of Hormuz was Iran's most powerful tool during the conflict.

The narrow waterway between Iran and Oman carries nearly one-fifth of the world's oil and liquefied natural gas supplies. Its closure effectively removed around 1 billion barrels of crude oil and refined products from producers such as Iraq, Kuwait, the United Arab Emirates and Iran itself.

At the same time, nearly 20% of global LNG supplies were trapped in the route, creating fears of a severe energy shortage.

The market managed to avoid a bigger crisis because countries released strategic and commercial oil inventories. China, the world's biggest crude importer, also sharply reduced its purchases, which helped balance demand and supply.

Now, even after the reopening of the Strait, the next challenge begins.

Oil producers have to restart normal exports, shipping companies need to clear the backlog of vessels, and countries will have to rebuild depleted inventories. This process could keep crude oil and natural gas prices higher for longer.

How quickly prices stabilise will depend on how fast Middle Eastern producers increase supplies and whether OPEC+ members can actually deliver the higher production levels they have promised.

WHY PETROL AND DIESEL PRICES MAY NOT FALL IMMEDIATELY

A fall in international crude oil prices does not automatically translate into cheaper fuel at Indian petrol pumps.

Dr Manoranjan Sharma, Chief Economist at Infomerics Ratings, said meaningful cuts in petrol and diesel prices would require crude oil prices to remain sustainably below around $80 per barrel.

He said oil marketing companies (OMCs) are still recovering earlier under-recoveries and are focused on strengthening their balance sheets.

"Prolonged low crude prices, rather than temporary corrections, are needed for substantial retail price cuts," Sharma said.

According to him, any near-term reduction is likely to be limited to around Rs 2-4 per litre and will be carefully calibrated rather than taking prices back to levels seen before the Middle East conflict.

WHAT ABOUT LPG CYLINDER PRICES?

The outlook for LPG prices also points towards selective relief rather than a broad reduction.

Sharma said the government has already provided support through LPG subsidies, including a Rs 200-per-cylinder subsidy for Pradhan Mantri Ujjwala Yojana (PMUY) beneficiaries.

Eligible households can receive support for up to 12 subsidised domestic cylinders annually.

If global LPG and crude oil prices continue to soften, the government's subsidy burden may come down, giving it more flexibility.

However, Sharma said any additional benefit will depend on international energy prices, government finances and fiscal priorities, which means relief is likely to be targeted rather than available to all consumers.

WILL CRUDE OIL PRICES FALL FURTHER?

The reopening of the Strait of Hormuz has given energy markets a short-term relief rally. However, the journey back to stable and lower oil prices could take much longer.

The direction of crude prices will depend on whether the US-Iran agreement holds, how quickly supply chains normalise, how fast lost oil supplies return to the market and whether OPEC+ can increase production as planned.

For now, the biggest takeaway for consumers is that cheaper crude does not immediately mean cheaper fuel.

The oil route may be open again, but the road to lower petrol and diesel prices in India is likely to be much slower.

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