According to ICICI Securities, although current crude prices remain below multi-year averages and are still manageable, OMCs are likely to feel the pressure, whereas upstream firms may benefit from the current price environment.
The brokerage notes that Brent crude has risen to USD 73–74 per barrel, following heightened tensions between Israel and Iran. “We estimate a material impact on OMC earnings and upside risk to upstream earnings even with crude at USD 73-74/bbl as is the case now,” the analysts said, adding that “further spikes [are] unlikely to reflect in upstream company earnings but likely to have a negative impact on OMC as well as gas company earnings (as prices of Crude linked LNG will also rise steadily).”
In its detailed sector note, ICICI Securities observed that despite the recent crude rebound, current price levels are still below the average prices seen over FY25 and the last four years.
Therefore, the impact on profitability of the Indian Oil & Gas companies is not unreasonable yet.
Also read: How will the surge in crude oil prices affect various sectors?However, the brokerage emphasized that recent movements in stock prices are a reflection of how volatile the Middle East situation has become, especially with the threat of shipping disruptions through the Strait of Hormuz and the possibility, however remote, of NATO getting dragged into the conflict if Iran attacks any western military bases in the Middle East.ICICI Securities also pointed to the broader geopolitical context. “Crude oil prices have been subdued over the last 12 months,” it said, citing adequate supplies and demand uncertainty that had helped keep prices in check.
But the recent Israel air strikes on Iran and the subsequent retaliation by Iran are now once again acting as a catalyst for rising prices.
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With crude prices now around USD 75/bbl—roughly USD 6–7/bbl higher than ICICI Securities’ FY26 base case of USD 68/bbl—the brokerage flagged downside risks to OMC earnings forecasts, while reiterating that upstream companies could benefit.
It also highlighted that crude prices still remain USD 9/bbl below the FY22–25 average and USD 4/bbl below the FY25 average, pointing to the fact that adequate supplies/demand concerns are still material. However, it warned that further escalation of the conflict remains a key risk.
On the supply side, ICICI Securities called attention to Iran’s crude exports. Despite sanctions, Iran has ramped up shipments from 1.1 mb/d in early FY23 to over 1.6 mb/d currently.
It noted that the credit for this goes to China, which has managed to figure out ways to consume >2/3rd of these exports over the last few years. Any disruption to these exports, it added, could materially tighten the global demand-supply balance.
On the natural gas front, Iran holds significant reserves but only exports a small fraction.
“Iran holds 34tcm of natural gas reserves, second only to Russia, but, due to sanctions, only a very small share of its annual production of 275bcm (12–13bcm) is exported, which is <2.5% of global traded LNG,” ICICI Securities wrote. With planned additions of over 20 mtpa of LNG capacity, the brokerage warned that “disruption expected in the energy infrastructure of Iran” could reduce future LNG availability.
While maintaining estimates and ratings unchanged for now, ICICI Securities continues to monitor crude markets closely. It has assigned a ‘buy’ rating on ONGC and Oil India, and an ‘add’ rating on Reliance Industries. HPCL also remains under active coverage.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
