West Asia conflict sparks oil price fears, India Inc flags hit to demand and remittances

New Delhi: Consumer company bosses warned about the impact of escalating crude oil prices, supply disruptions, impact on consumer buying sentiment and disruptions in remittances from the Gulf region due to the West Asian conflict at a time when demand had started to pick up.

“The escalation (in Brent crude prices) would have a cascading effect overall,” said Arup Chauhan, promoter of Parle Products, India’s largest biscuit maker. “Let’s hope for things to settle down within the next 72 hours or so.”

Crude oil is a core ingredient for consumer staples, including detergents, biscuits, toothpaste and paints, besides packaging. Petroleum derivatives are used in packaging material, soaps, detergents, hair oils, creams, shampoos and toothpastes, bottles and tubes. They account for over 25% of input costs in fast-moving consumer goods (FMCG) and 40% for paint companies.


Berger Paints chief executive officer Abhijit Roy said the industry has about a month-and-a half of finished goods and raw material, adding that if the Gulf conflict is a short one, the impact can be contained. The paint industry uses derivatives of crude for production of solvent-based paints, decorative paints and industrial paints.

“If it continues, prices may go up. Also, demand will be impacted in states like Kerala, Uttar Pradesh, West Bengal and Telangana which have high Gulf remittances,” said Roy.

Global markets are bracing for inflationary pressures and disruptions in the world’s most important oil-producing region.

Tehran has announced the closure of Strait of Hormuz, which accounts for close to a fifth of the global crude oil flow. The world’s largest oil choke point handles nearly 20 million barrels per day of crude, or nearly 20% of global oil consumption. Even a modest disruption can add anywhere between $10-15 per barrel to oil prices, analysts said. The Strait of Hormuz is vital for India, as it relies on imports for almost 90% of the country’s crude oil. Close to 50% of these imports pass through this chokepoint.

Benchmark Brent crude oil prices in recent weeks had hovered at about $72.48 per barrel.

“ It is very likely that on Monday morning, crude will open with a very high gap up--$100 dollar per barrel is not too far,” Ujjwal Dubey, portfolio analyst at Motilal Oswal Private Wealth, wrote in a LinkedIn post.

Air-conditioner maker Blue Star’s managing director B Thiagarajan said the conflict could cause a collapse of the southern markets, which are driven by remittances. Any increase in oil prices will impact consumer sentiment overall.

“The AC industry was already battling a bad last year with average prices increase of about 8.5% undertaken recently to balance the increase in commodity prices and forex volatility. On the back of this, the Middle East conflict is again disruptive. We have to wait and watch how the situation evolves,” he said.

Executives said the scale of the disruption would depend on the duration of the conflict.

Fast moving electrical goods manufacturer Havells India chairman Anil Rai Gupta said the impact on consumption and prices will depend entirely on how long the conflict continues. “The inflationary situation is not good with prices of copper and silver already on a high. The saving grace is the GST reduction. But if the conflict stays on for long, inflation can again spike,” he said.

The crisis looms at a time when the goods and service tax (GST) cuts of last September led to an uptick in demand across sectors, after over a year of slowing sales.

Maruti Suzuki said it’s closely monitoring the situation.

“Our exposure to the Middle East as an export region is not very high,” said senior executive officer Rahul Bharti. “This year, for example, it accounts for about 12.5% of our total exports. In fact, as we export to nearly 100 countries, we have ensured that our portfolio is well diversified and inherently de-risked.”

Auto component makers remain alert.

“We will continue to closely monitor geopolitical developments and global energy trends that could impact the sector,” said Vinnie Mehta, director general of the Automotive Component Manufacturers Association (ACMA). “While the crisis in the Middle East and rising crude prices may create some near-term cost pressures, the industry today is better prepared to manage volatility.”