West Asia Crisis Raises Oil Supply Risks For India, But Refiners Could Gain: Morgan Stanley

The ongoing West Asia crisis and disruptions around the Strait of Hormuz could create short-term stress for India’s crude supply chain, though diversified sourcing and inventories should help cushion the immediate impact, according to a report by Morgan Stanley.

The brokerage noted that India remains exposed to Middle East oil flows because a significant share of its imports transit the region. “40-50 per cent of India and China’s oil needs pass through the Strait of Hormuz,” the report said, highlighting the vulnerability of Asian energy supply chains to disruptions in the Gulf.

India also sources a large portion of its crude from the Middle East. The report estimates that “46 per cent of India’s crude basket is imported from the region,” underscoring the country’s reliance on Gulf producers for its refining requirements.

However, Morgan Stanley said inventories and alternative sourcing routes should prevent an immediate demand shock. “Crude and petroleum product reserves across Asia Pacific range between 30 and 200 days,” while countries including India are already tapping alternative suppliers.

To mitigate supply risks, India has been increasing purchases of discounted Russian oil and exploring other sources. “India is also ramping up purchases of Russian crude (particularly Urals) after the US waived sanctions on Russian oil imports for 30 days,” the report noted, adding that New Delhi is also in talks with Iran to secure safe passage for tankers carrying LPG and crude. “It is also in talks with Iran to secure safe passage for more than 20 tankers.” the report noted.

Despite the supply concerns, Morgan Stanley believes India’s refining sector could benefit if the disruption persists. Tight supply and export curbs across Asia have pushed refining margins higher. The report said gasoline, diesel, jet fuel, naphtha and fuel oil prices have risen 18-30 per cent in the past week, reflecting the tightening market.

Refiners with diversified crude sourcing, particularly large integrated players and state-run oil marketing companies, are likely to see improved profitability from higher product cracks. Morgan Stanley estimates that “a USD 1-1.5/bbl rise in gross margins for refiners would imply 15-30 per cent earnings upside in 2026.”

Overall, the report said the duration of the West Asia disruption will be critical for the outlook. While inventories and alternative crude sources provide short-term buffers, prolonged supply interruptions could intensify stress across Asia’s energy and industrial supply chains. (ANI)