Russia stands among the top three producers in the global crude oil market, holding vast reserves and a robust energy infrastructure. Its contributions to global oil supply are critical for major economies like China, India, and Europe.
By consistently providing a significant share of the world’s crude, Russia maintains a pivotal role in stabilizing international energy markets and ensuring a steady flow of oil to meet global demand.
Impact of U.S. Sanctions on Russian Oil Exports
Sanctions imposed by the United States on Russian oil will disrupt global supply chains, affecting nations reliant on Russian crude, such as China and India. With reduced access to Russian oil, these countries must turn to alternative suppliers.
This will create competition for Middle Eastern oil, particularly for China, while India faces increased costs and logistical hurdles. The ripple effects of these sanctions lead to market instability, reduced supply, and potential price volatility worldwide.
India’s Shift to Middle Eastern and African Oil
As a net importer of crude, India will pivot to the Middle East and Africa to fulfill its energy demands. This increased reliance, along with rising competition from other nations, is expected to push global crude prices higher. Middle Eastern exporters may face capacity challenges, while African suppliers could see growing demand. The resulting tighter supplies and rising costs will not only increase India’s import bills but also influence global energy pricing and market dynamics.
Crude Price
Brent crude has crossed $80 after 3 months for the first time while the price of WTI crude has jumped 2% to go past $78 as of January 13, 2025. This has created massive concerns among those economies which are net importers of Crude like India and China.
Affect on Indian Companies
Pressure on Oil Marketing Companies and Airlines
The rise in crude oil prices has significantly impacted crude-sensitive industries, with oil marketing companies (OMCs) and airlines being among the worst hit. Shares of major OMCs, such as Hindustan Petroleum Corporation (HPCL), Indian Oil Corporation (IOC), and Bharat Petroleum Corporation (BPCL), declined by 1-6% as higher crude prices increased input costs, squeezing their margins.
Similarly, airlines like InterGlobe Aviation (IndiGo) and SpiceJet, which are heavily reliant on aviation turbine fuel (a crude derivative), saw their stock prices fall by up to 4%. Elevated fuel costs are likely to erode profitability for these companies, making it challenging to maintain competitive pricing while sustaining margins.
Impact on Paint Manufacturers
Paint companies, particularly those in the decorative paint segment, are also bearing the brunt of rising crude prices. The paint industry is raw material-intensive, with petroleum-based products constituting the bulk of its inputs. Raw materials account for 55-60% of total input costs, making crude price fluctuations a critical factor for their gross margins.
A sharp uptick in crude prices directly inflates the cost of over 300 raw materials required for paint production. This has led to a decline in shares of major players like Asian Paints, Berger Paints, Shalimar Paints, and Akzo Nobel by up to 3%, as the market factors in the potential impact on their profitability.
Challenges for Tyre Manufacturers
Tyre companies are also grappling with the ripple effects of higher crude prices, as Brent crude plays a vital role in producing synthetic rubber and petrochemicals used in tyre manufacturing. Increased raw material costs drive up production expenses, compressing profit margins.
Shares of leading tyre companies such as CEAT, Apollo Tyres, and Balkrishna Industries have declined by up to 3% as investors anticipate margin pressure. Sustained high crude prices could further exacerbate financial stress, affecting both short-term performance and long-term growth prospects.
Written By: Dipangshu Kundu
