Middle East Tensions: Experts Warn Of Costlier Everyday Goods As Crude Oil Hits 5-Month High

Crude oil prices remained highly elevated in the international market amid persistent tensions in the Middle East, reaching a five-month high. On Tuesday, October 20, Brent crude, the global oil benchmark, escalated more than 1 per cent, moving past $110 per barrel. US-based WTI crude oil prices inched up to a level of $105 per barrel. The recent rise in energy prices was fueled after Iran issued stern warnings regarding movement through the Strait of Hormuz.

This year so far, Brent crude rose nearly 80, increasing the risk of a global energy crisis. The continued rise in crude oil prices could lead to higher petrol and diesel prices in India, which could directly impact retail and wholesale inflation.

Iran-US tensions and supply impact

Iran's First Vice President, Mohammad Reza Aref, has clearly stated that controlling the Strait of Hormuz is essential to safeguard national security. Additionally, Houthi attacks in Yemen and continued attacks on Saudi Arabia's energy and military facilities have further heightened concerns in the oil market.

Although US Energy Secretary Chris Wright and Iraq's Oil Minister say that oil exports from Gulf countries are gradually returning to pre-war levels, and shipments have improved somewhat following waivers from OPEC member countries, geopolitical instability continues to pressure prices.

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Could crude prices reach $150?

Jatin Trivedi, Commodity and Currency Vice President and Research Analyst at LKP Securities, told Jagran Business that if the geopolitical situation worsens further, crude oil prices could reach dangerous levels. If the US launches large-scale attacks on Iran after the US midterm elections and Iran completely halts shipments in retaliation, crude oil prices could even jump to $150 per barrel.

“A key condition for this is that Brent crude must cross a major hurdle of $110 to $115 and close above it every week. Until this major hurdle is crossed, there is no immediate threat of prices reaching $140-$150,” Trivedi said. 

What could become expensive in India?

Trivedi explains that if crude oil remains expensive in the international market, it will directly impact prices of essential items.  

• Petrol and Diesel: Retail fuel prices in India are directly linked to international crude oil prices, which could lead to a sharp increase in petrol and diesel prices at pumps.
• Logistics and Transportation: The increase in diesel prices will increase truck and freight fares, leading to higher prices for fruits, vegetables, milk, and other packaged food items.
• Fast-Moving Consumer Goods (FMCG): Increased transportation costs and the cost of plastic packaging material (which is also made from crude) could lead to higher prices. Prices of soap, oil, shampoo, and other household items may rise due to higher prices.
• Air Travel: Rising jet fuel (ATF) prices could significantly increase air travel costs.
• Inflation: Rising crude oil prices will increase the prices of imported goods in India, which could once again increase inflation in the country and directly burden the common man's pocket.

Government May Raise Petrol and Diesel Prices in November

According to Alexandra Harman Prasad, Lead Economist at Oxford Economics, the Indian government may increase petrol and diesel prices in November. This is the only and last practical opportunity left for the government to increase fuel prices before the assembly elections in several states early next year. She further stated,

If prices are raised in November, the increase could be almost half of the total 7.5 per cent increase in May, during the US-Iran War.