Prolonged West Asia Crisis could keep crude oil around $95/barrel, says RBI deputy guv

RBI Deputy Governor Poonam Gupta said on Friday that a prolonged war in the Middle East could keep crude oil prices near $95 per barrel, stating that the central bank had earlier estimated the benchmark to stay around $85 per barrel-levels.

Her remarks came after the West Asia crisis completed two months since joint American-Israeli attacks against Tehran that killed Iran's supreme leader Ali Khamenei on February 28 and triggered Iran's retaliatory action against several countries in the region.

The escalations stirred up broader escalations in the region, effectively leaving the Strait of Hormuz blocked and rattling global energy markets. That prompted India -- which meets more than four-fifths of its oil demand through imports -- to ramp up its domestic output, diversify imports and prioritise supplies to households and essential sectors to ensure smooth activity in the supply chain.

She noted that crude oil is trading above the $100 a barrel mark.

Crude oil benchmarks stay above $100 per barrel

On Friday, Brent was last seen trading 1.6 per cent lower at $108.6 per barrel, while West Texas Intermediate (WTI) was down 2.9 per cent at $102 per barrel.

This week, despite easing from nearly four-year highs after a month, oil prices continued to hover around the $100 mark.

Higher oil prices inflate the country's import bill, dent the rupee against the US dollar, and widen its current account deficit. That said, they also push fuel and transport costs higher, fuelling inflationary pressure, which, in turn, leaves less room for the RBI to ease monetary policy.

Analysts argue that two months into the West Asia crisis, with one round of peace talks having fallen through, world markets are more immune to the Middle East crisis today compared to the onset of escalations that saw more aggressive ripples across equities.

UAE exits OPEC+

Meanwhile, the UAE decided to press exit on its nearly-six-decade OPEC membership, leaving the producers' group weaker and potentially triggering an output rush that could ease oil prices lower.

The UAE was OPEC’s fourth-largest producer with a strong spare capacity. With the UAE now out of the grouping, Saudi Arabia and Russia are set to dominate the grouping and their response to the development will be crucial in determining the fate of energy markets going forward, say analysts.

Some estimates suggest that the UAE could raise output from about 3.3 million bpd to 4.5-5 million bpd if normal shipping resumes in the strait, though there are growing concerns whether its supplies alone would be enough to significantly drive prices down.

Many market experts have highlighted that the UAE's move confirm growing differences within major oil-producing countries and could hamper coordination on oil production in the long run.

Formed in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, OPEC today has 11 member countries and accounts for a significant share of global oil supply.

Its members coordinate production levels to influence oil prices and stabilise global markets -- moves that essentially play a crucial role in balancing supply and demand.

Monetary policy transmission swift: RBI Deputy Governor

She said that monetary policy transmission has been swift.

Speaking about inward remittances, she said that only 40 per cent of remittances come from West Asia.

Remittances from overseas Indians are diversified, she noted.