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Explained: Will oil price increase if Israel-Hamas war intensifies?

The Israel-Hamas conflict raises concerns about India's oil supply. Escalation to involve OPEC nations, especially Saudi Arabia, could lead to a severe crisis, with higher oil prices, a depreciating rupee, and inflation. However, if the conflict remains localized, India's impact may be limited, with trade ties to Israel less significant. Recent oil price surges due to the conflict could lead to petrol and diesel price increases in India, affecting the economy's stability.

Explained: Will oil price increase if Israel-Hamas war intensifies? vkp
First Published Oct 9, 2023, 2:26 PM IST

The ongoing conflict between Israel and Hamas in Palestine has sparked concerns over its potential repercussions on India's oil supply, triggering fears of a depreciating rupee and surging inflation. Economists have issued warnings that if the conflict escalates to involve OPEC (Oil Producing Countries) nations, including major oil supplier Saudi Arabia, India could face a severe crisis. The already surging oil prices could witness further spikes, leading to the devaluation of the Indian rupee and potentially exacerbating inflation.

However, if the conflict remains localized between Israel and Hamas, India may not experience substantial adverse effects. India's trade ties with Israel are relatively limited, with a total trade volume of approximately $10 billion (around ₹83,000 crores). Of this amount, India exports about $8.5 billion (approximately ₹70,000 crores) worth of goods to Israel and imports roughly $2.3 billion (₹19,000 crores) in return. The real cause for concern emerges if neighbouring Islamic countries become embroiled in the conflict, as this could pose significant challenges for India.

Explained: Who is supporting Hamas in war against Israel?

Oil prices surged by more than $4 per barrel in early Asian trade on Monday due to intense military clashes between Israeli and Hamas forces over the weekend. These events have deepened political uncertainty across the Middle East.

This oil price surge marks a reversal of the previous week's trend, which saw the largest weekly decline since March, with Brent crude falling approximately 11% and WTI retracting more than 8%. These fluctuations were driven by concerns about high interest rates and their potential impact on global demand.

Explained: How Israel-Palestine war impacts India and its diplomacy

Hamas, the Palestinian Islamist group, launched its most extensive military assault on Israel in decades on Saturday, resulting in the deaths of hundreds of Israelis and triggering a wave of retaliatory Israeli air strikes on Gaza, which continued through Sunday.

Analysts have analyzed that the abrupt surge in crude oil prices, following a period of relative stability since the Russia-Ukraine conflict, will have a significant impact on countries like India, which are heavily dependent on crude oil imports. Consequently, it is expected that petrol and diesel prices in India will increase in the coming days. In the aftermath of the Israel-Palestine conflict, the global crude oil price suddenly increased by 4%. This spike is anticipated to have a ripple effect on India, given its reliance on crude oil imports.

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