Economy braces for a crude shock after US airstrike kills Iran general

Economy braces for a crude shock after US airstrike kills Iran general

New Delhi: Investors in India were rattled on Friday after a US airstrike killed a top Iranian general, sending crude oil prices soaring, a development that could further strain the finances of the world’s third largest crude importer and deepen an economic downturn.

Crude oil futures in London and New York surged by over 4% to levels not seen since the attacks on Saudi Arabia’s oil production facility in September. The strike near Baghdad airport murdered Qasem Soleimani, the general who headed the Revolutionary Guards’ Quds force, according to a US defence department announcement.

While no petroleum installations or production were struck, the killing of one of Iran’s most powerful generals is a provocation that ratchets up tension between Washington and Tehran, heightening fears of an armed confrontation that could pull in different countries.

The surge in prices is worrying for New Delhi as India imports more than 80 percent of its fuel requirements. Analysts forecast that Brent crude oil costs could breach $70-72 a barrel if Teheran retaliates.

Even though New Delhi has slashed its crude imports from Iran to minimal levels since a US sanctions waiver on its own purchases ended in May last year, a bulk of India’s crude oil supplies are routed from West Asian countries through the Strait of Hormuz-a narrow passageway that carries one-fifth of the planet’s oil-which could be vulnerable in the case of a wider US-Iran conflict, analysts say.

India had deployed assets in the area to protect its supplies in the wake of mine attacks.

With India’s gross domestic product growth slowing to a six-and-a-half-year low of 4.5% in the September quarter, there are serious issues that high fuel prices could hurt economic recovery.

According to one estimate by a government official, West Asia is the source of some $200 billion in remittances, trade and investments for India.

The jitters over the possible economic impact saw the rupee on Friday closing in a six-week low against the dollar, while the benchmark BSE Sensex fell 0.39% to 41,464.61 points.