Synopsis: Brent crude pushed past $90 a barrel on Monday, its highest level in nearly six weeks, after a brief mid-July recovery in Gulf oil exports and LNG shipments through the Strait of Hormuz reversed sharply as the United States and Iran resumed hostilities. The Indian rupee opened 12 paise weaker at 96.40 against the dollar, stretching its decline for the month to 1.7% and moving closer to its record low of 96.96 struck in May.
Data from Kpler and Vortexa, cited by Reuters, showed crude and condensate exports out of the Persian Gulf climbing back to pre-conflict levels in the first half of July, with flows from Saudi Arabia, the UAE, Iraq, Iran and Kuwait rising 16% from June to somewhere between 12 million and 13.6 million barrels a day, depending on the tracking firm. Iraq and Iran led that rebound.
That recovery has already gone into reverse. Tanker crossings through the Strait of Hormuz have slowed to a trickle again as the latest round of US-Iran hostilities intensifies, and a Kpler analyst told Reuters that the slowdown in shipping activity will force Gulf producers to trim output simply because there is no longer enough tanker traffic to move the crude. A Barclays analyst added that the coming weeks will show how much export capacity the region can sustain under the renewed blockade conditions on both sides of the strait.
LNG has been hit even harder than crude. Tanker-tracking data reviewed by Reuters suggests LNG shipments through Hormuz have effectively stopped over the past three days, and ING’s commodity strategists flagged that gas markets are likely to suffer more than oil markets this time around, pointing to how slowly LNG traffic rebuilt after the ceasefire reached between Washington and Tehran in June. Europe, heading into the northern hemisphere’s heating season, was singled out as the most exposed buyer.
Asian LNG prices have already reacted. The regional Japan-Korea Marker benchmark has risen 25% over the past four weeks and is up more than 60% from a year ago, with prices gaining 10% in the week to July 16 alone and spot cargoes touching $20.2 per million British thermal units that day. Qatar had been ramping up output in anticipation of a lasting resolution to the conflict, a bet that now looks premature.
LSEG data cited by Reuters showed only four tankers entering the strait to load cargo since Friday, none of them LNG carriers; three were likely oil product tankers and one was a very large crude carrier, underlining just how thin traffic through the waterway has become. Brent was trading near $88.79 a barrel by midday, up 0.79% on the day and 13.91% for the month, while WTI held around $82.60, up 11.80% over the same one-month window, according to Trading Economics data.
Rupee and Domestic Market Reaction
The rupee opened at 96.40 against the dollar on Monday, down 12 paise, as the fresh surge in oil prices and the deepening Gulf conflict weighed on sentiment. The currency has now shed 1.7% this month and is edging toward the record low of 96.96 it touched in May, having briefly clawed back some of those losses when crude retreated toward $70 a barrel and the Reserve Bank of India stepped in with measures to draw in dollar inflows, aided by a pickup in foreign portfolio buying of Indian equities.
Those gains proved short-lived. Brent’s 2.7% jump on Monday marked its first move above $90 in almost six weeks, coinciding with the ninth straight night of US strikes on Iran and fresh reports of Iranian attacks on Kuwait and Bahrain. Shipping through the strait has become a two-way target, with both the US and Iran now going after vessels tied to the other side, feeding fears of further disruption to crude supply and keeping pressure on both oil prices and the rupee.
The Dollar Index, meanwhile, has held steady near 100.80, limiting how much relief emerging-market currencies can draw even from softer US inflation data. American consumer sentiment climbed to 54.4 in July, its best reading since February and above what economists had expected, though analysts noted that most of that survey was completed before the latest escalation pushed fuel prices back up, meaning the reading may not hold once the next survey captures the current mood.
India’s foreign exchange reserves stood at roughly $675 billion for the week ended July 10, a cushion market participants continue to point to, though the headline number does not capture the RBI’s outstanding forward commitments, which stood at a net short position of $106.66 billion at the end of May and are widely expected to have grown further as the central bank kept intervening through the recent bout of volatility. That suggests the reserves available for fresh intervention may be smaller than the topline figure implies.
Adding to the uncertainty, the temporary 10% US tariff relief on Indian exports is due to lapse on July 24, with talks between New Delhi and Washington reportedly in their final stretch. India is pushing for tariff treatment on par with Vietnam and Indonesia, and any slippage in reaching a deal this week would add another source of pressure on exporters just as the currency is already under strain from oil. On the charts, Amit Pabari of CR Forex Advisors pointed to 96.10 – 96.20 as a firm support zone and 96.50 as the level to watch on the way up, one he expects to give way and open the door toward 97.00 – 97.50.
Why It Matters for India
India imports close to 85% of the crude oil it consumes, so a Brent price back above $90 revives the exact current account and import bill worries that had eased only weeks earlier when prices briefly slipped toward $70. Every sustained dollar increase in crude adds directly to the country’s oil import bill and, by extension, to pressure on the rupee and on domestic inflation expectations.
Sectors that run on crude-linked inputs, including aviation, paints, chemicals, logistics and oil marketing companies, face renewed margin pressure the longer this round of the blockade continues, while upstream exploration and production companies stand to gain from stronger realisations if elevated prices hold. The RBI is widely expected to keep intervening to smooth the rupee’s slide, even if its actual room to do so may be tighter than the headline reserve figure suggests once forward commitments are accounted for.
Global Backdrop
The conflict has moved well past isolated naval incidents. Iran has said its ceasefire with the US has effectively collapsed and reported intercepting four vessels in the strait over the weekend, while the US has confirmed the death of a third serviceman in as many days amid continuing exchanges with Tehran. Strikes have also expanded to bridges, utilities and port infrastructure, and Kuwait Petroleum Corp said one of its oil facilities was hit over the weekend.
With both militaries now treating tankers as legitimate targets and LNG flows lagging oil’s earlier, brief recovery by a wide margin, the risk to gas-dependent buyers heading into the winter heating season looks more serious than the risk to oil markets alone. How quickly, or whether, Gulf export volumes and LNG traffic can rebuild once this latest flare-up eventually cools is likely to matter as much for prices in the coming weeks as the headlines coming out of the strait each day.
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