Oil Prices Hit $110 Now: Iran-Israel Conflict and the $150 Risk Explained

Crude oil prices continued to surge as much as 5% on March 19, extending the gains of March 18. According to reports, the Brent crude prices reached $112 per barrel as tensions in the Gulf increased due to energy infrastructure being targeted by both Israel and Iran.

The escalation comes at a time when the conflict is entering its fourth week, raising concerns across global markets.

Energy Infrastructure Under Attack

As reported by The Economic Times, US crude futures jumped over 3% to $99.39 per barrel. While Brent crude reached $111.19 in early trading and continued to rise by 4% on the morning of March 19 to $112 per barrel, getting closer to the initial war peak of $120, natural gas prices increased by more than 5%. Overnight, US natural gas also increased by almost 5%.

This comes after Iran threatened to attack oil and gas assets throughout the Gulf after accusing Israel of attacking facilities at its South Pars gas field. Declaring energy infrastructure in Saudi Arabia, the United Arab Emirates, and Qatar to be legitimate targets, it launched missiles in their direction. Iran also claimed to have attacked a Qatari LNG plant.

According to Iran's semi-official Fars news agency, LNG assets in Bahrain were reportedly hit by heavy missile strikes, and Abu Dhabi suspended operations at its Habshan gas facilities after missile interceptions caused falling debris. Following Iranian strikes, Ras Laffan Industrial City in Qatar also sustained significant damage.

Saudi Arabia reportedly stopped a drone attack on a gas facility in its eastern region and intercepted several ballistic missiles targeted at Riyadh. Following the attack on its South Pars gas field, which Israeli media claimed was carried out by Israel with US approval, Iran issued additional warnings about evacuations at energy facilities in Saudi Arabia, the United Arab Emirates, and Qatar, hinting at possible future strikes. Neither nation confirmed involvement.

Meanwhile, attacks on commercial ships and threats of further strikes have halted nearly all tankers from carrying oil, gas and other goods through the Strait of Hormuz.

Oil Price Risks Ahead

A report published by Nomura on March 18 revealed that the Russian crude is still the cheapest available crude for India. Despite a sharp increase in premium vs Dated Brent on a delivered basis, Russian crude remains the cheapest available crude for Indian refiners. This is due to a sharp surge in freight costs (note that Dated Brent is quoted on an FOB (free on board) basis while Russian Urals are quoted on India-delivered basis) and significant divergence between Dubai/Oman benchmarks vs Brent.

The report further predicted that crude is currently being sourced from the UAE and Saudi Arabia to be over $150 per barrel on a delivered basis, about $40 per barrel higher than the delivered cost of Russian crude. However, despite the one month waiver on sanctions to Russian crude, availability remains a challenge as India has to compete with China for procuring Russian barrels due to global supply squeeze.

Commenting on the surge in oil prices, VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited said that the uncertainty surrounding the war has turned worse with Israel hitting the world’s largest LNG refinery in Iran. Brent crude has shot up to $111.

Calling it bad news for oil and gas importers like India, he added, “If Brent remains above $110 for an extended period of time, that will have negative implications for India’s macros. India’s GDP growth and corporate earnings in FY27, too, will be impacted. But this scenario need not play out in the fast-changing scenario.”

Higher Crude Oil Price Could Put Pressure

According to a March 18 report by Nomura, higher crude oil prices above $100 per barrel are expected to put significant pressure on the financials of oil marketing companies (OMCs), with estimates suggesting substantial losses in fuel retailing at current levels. The report indicated that if prices remain elevated, the government may consider reintroducing the windfall tax, or Special Additional Excise Duty (SAED), on domestic crude producers such as ONGC and Oil India. The additional tax revenue could then be used to offset losses faced by OMCs and provide relief to consumers through cuts in excise duties on petrol and diesel. “According to our estimates, the government can provide ₹3 per liter in excise duty relief on petrol/diesel by fully passing the windfall tax collection from crude, as calculated above,” stated the report. However, any relief beyond a certain level would likely require direct support from the government budget, increasing fiscal pressure.

That said, some reports indicate that the actual impact on supply may be limited.

According to the report published by JP Morgan on March 13, the impact on the oil supply would likely be limited. The report further predicted that if loading jetties, storage tanks and pipelines remain intact, Iran’s export capacity would be largely unchanged and the country could still ship roughly 1.5-1.7 million barrels per day (mbd) of crude. Any disruption would likely be temporary and precautionary.

Global Inflation Risks Rise

Meanwhile, a report released by Union Bank of India on March 17 revealed that global oil markets have remained extremely volatile amid the intensifying US-Iran conflict, raising concerns about possible supply disruptions through the Strait of Hormuz, a crucial global transit route.

During the week, Brent crude prices soared above $115 per barrel before slightly declining due to rumours of potential diplomatic engagement. But the dramatic increase has raised worries about energy-driven inflation, especially for developing nations that rely largely on oil imports.