Raising concerns over the impact of the ongoing crisis between Iran and US-Israel, Moody’s Ratings in a note on oil supply shock in prolonged West Asia conflict has said that the escalating West Asia conflict could spike energy prices and disrupt supplies, adding pressure on India’s rupee, inflation and current account deficit, as the country is highly dependent on crude oil and LNG imports from the region. The country imports about 46 per cent of its oil and natural gas requirements from West Asia. Supplies from the region have been disrupted as the widening West Asia conflict has blocked the Strait of Hormuz, a key conduit for crude oil and LNG exports from the region.

Moody's said the West Asia conflict poses substantial risk to the global economy, particularly if it causes prolonged disruption in global energy markets. The Strait of Hormuz, a vital shipping route for oil and Liquefied Natural Gas (LNG), remains a critical choke point. It said although infrastructure damage so far has been limited and global inventories offer short-term buffers, shipping through the strait has largely stalled and some regional ports have suspended operations, disrupting trade in oil and LNG. 

It added ‘But a prolonged disruption in navigation through the Strait of Hormuz, beyond our baseline of a few weeks, would likely trigger sustained supply shortages; prices averaging higher than $100 per barrel for Brent, the main international benchmark crude; higher inflation; tighter financial conditions; and slower global growth’. It also said energy-importing regions in Asia and Europe would sustain the most immediate stress from $100-plus Brent crude. It said ‘a prolonged blockage would restrict significant global supply and drive energy prices higher’.