Crude is proving to be the snake in the grass.
Nothing was wrong with the economy as per the markets and it went on galloping into the north, showing complete disparity between what is real and what is being perceived as real. But looks like it needed crude to bring this into the right perspective. The fear now is that with crude going up so fast, the party which the market thought will happen soon might now get postponed. Reality seems to have finally dawned and it took a USA and Iran to snap the markets out of the dream.
Geopolitics is tricky like that – you think all is hunky dory in your periphery and suddenly out-of-the-blue, you are knocked off your perch.
As though it was more of a ‘dare,’ Trump ordered the assassination of Iran’s Maj. Gen. Qassim Suleimani, their most influential commander and strategist. Naturally, Iran will strike back and this has put the entire Middle East into ‘high risk’ zone. Tensions are brewing and in this, it is crude oil which is boiling. Futures for Brent crude, the global benchmark, gained 2.4% to reach $70.24 per barrel — the first time prices have hit that amount in more than six months. US oil futures advanced 2.1% to reach $64.36 per barrel.
Gold which is usually the safe haven every time there is any geopolitical tension, rose to an almost 7-year high and the rupee has weakened below $72/US dollar.
As such the economy is hurting and in the midst of this, to have these vital parameters shooting up does not help recovery. Fuel prices in the country have started climbing up since the news broke. Petrol is now at Rs.75.54/litre, the highest in more than a year while diesel is at Rs.68.51/litre (Prices in Delhi).
We are so precarious when it comes to crude as 84% of our oil needs are met through imports from the Middle East - mainly Iraq and Saudi Arabia. No one at the moment knows how Iran is going to react. The local militia like Hezbollah or the ones in Syria might rise again.
Think logically – Iran does not have neither the muscle power nor the financial wherewithal to collide head-on with USA; if it is foolish enough to do so, it will be decimated to the ground. Surely Iran is aware of this. It will instead concentrate on tactical attacks which either kills Americans or American interests. Thus a full-fledged war does not seem like a probability right now – again, we do not know what Iran is mobilizing in the background, Of course if China and Russia show their support for Iran, it will be mayhem. But till date, no one has come ahead showing 100% for Iran.
So what we have now is an air of uncertainty. Though there is no immediate threat of any supply disruption to India, the sentiment currently is that of ‘anything could happen.’
Thus in the short term crude will remain the rude shock and that is bound to impact the market. That’s the sad truth….