Oil crosses $105 a barrel as West Asia hostilities escalate

Yemen’s Houthi militia has captured the critical Red Sea city of Mocha, widening its hold over the strategic Bab-al-Mandeb strait, a vital global trade corridor, according to a report by Al Jazeera.

New Delhi: Oil prices continued to rally on Thursday, with Brent crude surging over 4% to cross $105 per barrel, nearing a four-month high, driven by the escalating conflict in West Asia and the Houthi militia’s advancement toward the Bab-al-Mandeb strait.

Yemen’s Houthi militia has captured the critical Red Sea city of Mocha, widening its hold over the strategic Bab-al-Mandeb strait, a vital global trade corridor, according to a report by Al Jazeera. Houthi control over the channel is expected to disrupt Saudi crude exports through the route, dealing another blow to global oil supplies.

Around 9 pm IST, the November Brent contract on the Intercontinental Exchange was trading at $105.82 a barrel, up 4.55% from its previous close. Meanwhile, the October West Texas Intermediate contract on the NYMEX climbed 4.42% to $100.30 a barrel. On Wednesday, Brent had crossed $100 a barrel for the first time in six weeks.

The escalating hostilities in West Asia heighten the risk of constrained supplies, threatening to inflate India’s crude import bill while adding to inflationary and fiscal pressures.

Rising strain on India's oil bill

India, which imports about 90% of its crude, remains particularly exposed to sustained price increases. Estimates by Bank of Baroda show that a persistent $1 rise in crude prices can increase the country's annual import bill by around ₹18,000 crore. At about $120 billion annually, India’s oil import bill makes up about 17% to 25% of its total merchandise imports.

This stress was building even prior to the recent surge. India’s crude oil import bill for the April-July period reached $63.37 billion, up 56% year-on-year, and already represents over half of the total oil import expenditure for the preceding financial year.

The surge comes as global financial markets contend with the risk of rising energy costs weighing on broader economic growth. Rating agency ICRA noted that based on the average price of the Indian crude basket in September so far, state oil marketing companies are incurring negative marketing margins of ₹5 per litre on petrol and ₹23 per litre on diesel, while domestic LPG under-recoveries have touched nearly ₹200 per cylinder.

In a major development that could influence energy markets going forward, US President Donald Trump said on Wednesday that he expects the war with Iran to persist until after November's midterm elections, adding that crude prices are unlikely to drop before then.

"I think the war's going to end immediately after the election because they can't hold out any longer," Trump said, referring to Iran's leadership.

About the Author

Rituraj Baruah is a special correspondent covering energy, housing, urban affairs, heavy industries and small businesses at Mint. He has reported on diverse sectors over the last eight years including, commodities and stocks market, insolvency and real estate; with previous stints at Cogencis Information Services, Indo-Asian News Service (IANS) and Inc42.

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