Across the world, economists, policymakers, diplomats, and the overall business community have been a worried lot. Every headline of the US-Iran war is being watched with concern, as governments the world over worry about the possibility of runaway inflation due to disruption in the supply of oil and gas, with everyone looking forward to the end of hostilities.
In India, many companies are feeling the heat of the events in the Middle East, as these developments could affect their operations for the better or worse.
With oil prices already surging 9-10% after Iran blocked the Strait of Hormuz for Western-bound ships, many businesses are now bracing up for the challenges (or opportunities) that this geopolitical risk factor has brought to them.
These are the companies that are bound to be affected by the war in West Asia, and how it they are bracing for the same.
Bharat Petroleum (BPCL)
With India importing almost 85% of its crude, wars like this have affected the supply of crude from the Middle East, given that almost 40-50% of India’s oil passes through the Strait of Hormuz. BPCL’s shares have fallen almost 5-6% in recent sessions, as the markets reacted to the news of escalations due to the US-Iran war. If the war continues, BPCL and other Oil Marketing Companies (OMCs) will have to find alternative sources, though this could lead to higher petrol prices and lower valuations in the short term.
Reliance Industries (RIL)
As India’s largest private petroleum refining company, RIL could become another casualty of the tensions between the US and Iran, affecting its supply chain and export prospects. The company will have to make do with compressed margins, even as alternatives like Russian and Venezuelan oil could fill the void left behind. Besides, this could also affect its cash flows to its subsidiaries Reliance Jio Infocomm and Reliance Retail, forcing the Mukesh Ambani-led company to find creative ways to boost its company’s revenues.
Asian Paints
One of the leading paint scrips in India could face supply chain shocks and input price surges as the company relies heavily on crude oil-based solvents and resins. A persistent increase in input prices could compress margins, leaving limited room for the company to raise prices, given the increasing competition in the paints segment.
GAIL
With almost 40% of its supplies of natural gas now under threat due to the Middle East conflict, GAIL will have to expand its sourcing from Russia and the US, even as its industrial customers are already seeing a 10-30% reduction in supplies. Being primarily responsible for India’s natural gas grid, GAIL will now have to secure supplies quickly from alternative sources, even as the threat of increased LPG prices could become a reality in the short term.
IndiGo (Interglobe Aviation)
The most vulnerable of the lot remains India’s largest private airline, IndiGo. With jet fuel volatility directly affecting its revenues, IndiGo is expected to witness a challenge to its revenues even as almost 500 flights to its highly lucrative Middle Eastern and European routes remain suspended due to the war. After being highly criticised for its mismanagement that led to mass flight cancellations across India during the first week of December, this fresh challenge could strain the Low Cost Carrier further, putting a spanner to its expansion plans.
