After Iran-US Peace Deal, Why India’s Energy Worries Are Far From Over

After the United States and Iran announced on Sunday that they had reached a peace agreement which is likely to be signed later this week in Switzerland, global oil prices witnessed a fall on Monday, raising hopes for the reopening of the strategically vital Strait of Hormuz and the stability in the energy market.

For India, which imports more than 85 per cent of its crude oil requirements, the development is undoubtedly positive. However, experts caution that the country's energy concerns are far from over.

Brent crude prices dropped by almost five per cent after the announcement of a preliminary deal aimed at ending months of conflict.

The agreement is expected to ease pressure on India's energy import bill and provide support to the ruppee.

During the conflict which began in February 28, disruptions in Gulf shipping had pushed oil prices above $100 per barrel and raised fears of prolonged supply shortages.

Yet analysts say that while the deal has the potential to benefit India in the shorter run but highlight that return to the pre-conflict price environment appears unlikely anytime soon.

"While Brent crude and LNG prices may continue to decline in the near term, a return to the pre-conflict price environment appears unlikely anytime soon. Energy infrastructure in parts of the region, including facilities affected during the conflict, will take time to recover, " said Sourav Mitra, Partner (Energy), Grant Thornton Bharat and Head of the Oil & Gas Practice speaking to Outlook India.

"On the gas front, supplies from Qatar to India remain largely undisrupted, which should help moderate LNG prices. Nevertheless, energy markets are expected to remain volatile, with geopolitical risk now becoming a more prominent component of pricing," he added.

Notably, commercial vessels that were stranded or delayed are also now beginning to resume normal operations. 

The LNG carrier Disha, chartered by Petronet LNG, is among the first vessels to transit the Strait after the announcement of the preliminary ceasefire, signalling a gradual restoration of energy trade flows.

According to experts, India is relatively better positioned than many countries because it has diversified its crude import basket over the years, sourcing oil from Russia, Latin America and other regions in addition to the Middle East. 

However, the crisis has left a lasting impact on global energy markets. Shipping companies, insurers and traders have been reminded of the geopolitical risks associated with key maritime chokepoints. 

"Even as energy prices soften, marine insurance premiums and risk-related shipping costs are likely to remain elevated, increasing the overall landed cost of energy imports," Mitra said. 

While the Iran-US deal has reduced immediate fears of an energy shock, it has not eliminated the deeper vulnerabilities associated with India's heavy reliance on imported fuel.