Global oil supply: Iran may use threat of closing Strait of Hormuz as leverage only; analysts say markets remain in surplus
Representative image
Iran has repeatedly warned of blocking the Strait of Hormuz, a narrow yet strategically crucial maritime chokepoint for global oil supply, however, the country has not yet shut it down.
Analysts say that the vital passage has never been shut down and Iran is using this threat as a diplomatic lever and that the chances of an actual shutdown are slim. Additionally, global oil markets are also well prepared to absorb any geopolitical shock from the region.
"Iran has threatened to close the Strait of Hormuz numerous times in the past but has never followed through, as doing so would be strategically and economically self-defeating," said Hitesh Jain, strategist for institutional equities research at Yes Securities.
The Strait, which lies between Iran and the Arabian Peninsula, is the main passage for oil exports from Saudi Arabia, Iran, Iraq, Kuwait and the UAE. It also serves as a key route for liquefied natural gas (LNG) shipments from Qatar. Roughly 20% or one fifth of global oil and a significant share of global LNG passes through this narrow waterway. Over a third of India's energy needs also travel through the passage.
Jain noted that oil markets remain well-supplied, pointing to OPEC's spare capacity of 4 million barrels per day and a pre-conflict global surplus of 0.9 million bpd as key buffers.
The growing strength of US shale production, he added, further boosted the market's resilience.
Rating agency ICRA echoed the sentiment but added a note of caution, suggesting that crude prices may average to $70-80 per barrel for the current fiscal year.
'A sustained flare-up in the conflict poses upside risks for our estimates of crude oil prices, and consequently of net oil imports and the current account deficit (CAD).
A $10 per barrel increase in the average price of crude oil for the fiscal will typically push up net oil imports by $13-14 billion during the year, enlarging the CAD by 0.3 per cent of GDP.'
India is heavily reliant on imported energy, with over 85% of its crude oil and around half of its natural gas needs coming from abroad, PTI reported.
Imports from Iraq, Saudi Arabia, Kuwait and the UAE, most of which pass through the Strait, account for 40–45% of India's oil supply.
Roughly 60% of its LNG imports also transit through the same channel.
Jain added that the global energy landscape has evolved significantly. Since 2008, the rise of US shale has enhanced global supply and flexibility, allowing markets to absorb geopolitical shocks with only short-lived price spikes. Meanwhile, OPEC's reduced market share and increased spare capacity, largely from Saudi Arabia and the UAE—have helped keep volatility in check.
On the demand side, China's weak post-COVID recovery and the global shift towards electric vehicles (EVs), improved fuel efficiency, and greener policies are slowing oil demand in OECD countries. 'Given this backdrop, Brent crude is unlikely to sustain levels above $80 per barrel in a durable way unless the Strait of Hormuz is closed, or critical Gulf infrastructure is targeted,' Jain noted.
The International Energy Agency (IEA) and US Energy Information Administration (EIA) have both trimmed their 2025 global oil demand growth forecastsby 0.2-0.28 million barrels per day.
Still, ICRA cautioned that regional risks remain. Iran currently produces about 3.3 million barrels of crude oil per day, of which 1.8–2.0 million bpd is exported. 'While Iranian oil and gas facilities have reportedly been attacked, the extent of damage is not clear. However, any disruption of Iranian production and supplies or a wider regional conflict impacting other large producers in the region could push energy prices higher.
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'At these elevated crude oil prices, while the profitability of upstream players will remain healthy and their capex plans will remain intact, the marketing margins of downstream players will be impacted along with the expansion of LPG under-recoveries' the rating agency added.
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Investors may face short-term stagnation, but enduring patience often leads to stronger long-term returns—especially critical for newcomers navigating today's uncertain market. Synopsis Market veterans urge patience amid current dull phases and geopolitical tensions. While returns may dip temporarily, long-term gains often follow extended periods of low performance. New investors should embrace this cycle with discipline and perspective. I was talking to some people they were saying that market is dull. What do we do? So, I said expect little lower return and get ready for a bigger return. Longer you wait for a low return, higher will be the return on the back ended. So, this is a time for a little patience, says Raamdeo Agrawal, co-founder of Motilal Oswal Group. ADVERTISEMENT Raamdeo Agrawal: Coming back to your question, markets have been actually very resilient if you look at a very long term, 10, 15, 17 years. It has been very predictable market and in last 16 years if you see, we have seen…, 16 years means we are talking about something like post GFC which is about 2008-09. So, after that only Covid has been one of the big breakdown, otherwise market has been very-very nice and scaling up. And from 2020 post Covid, we are seeing virtual boom from 8,000-9,000 post covid correction to now 24,000-25,000, so 3x in five years, so it is a very sustained rise and it is very resilient. I mean, good thing is that not only it is rising, the corrections are very-very shallow and so that is giving the confidence. Even it has given a lot more confidence to retail investors and so, yes, journey has been very good. Raamdeo Agrawal: So, I was talking to some people they were saying that market is dull. What do we do? So, I said expect little lower return and get ready for a bigger return. Longer you wait for a low return, higher will be the return on the back ended. 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One is that there is no outperformance to further gold performance. If gold has done 15% or index has done 15%, I think I must have done at least 20%, so that 5% is not possible in gold. It is only possible in equities and I mean, some of the guys might have done 25%, 30% also, that is not possible in gold unless you leverage and those kind of things. So, yes, I mean, gold has outperformed my own wildest expectation and it has emerged globally also as a very important bucket of value, so the people who believe in gold, of course, it is good news to them. And right now, it looks very, what do you call, bullish, but I would not put anything onto the gold. I am pretty comfortable. One of the things which Mr Buffett said is do what you understand. So, I understand only equities. So, I am pretty good at staying with equities. ADVERTISEMENT Raamdeo Agrawal: No, I still think capital market remains a big opportunity because it is asset light and it is very scalable and the firms, particularly is the opportunity size is one. Second is the scalability within, what do you call, opportunity itself, like if you look at the global asset management companies, now they do not talk in billions, they only talk in trillions. I mean, like there are $8 trillion, $10 trillion kind of a single asset management company. So, those kind of… As our AUM grows, we will also see that 10-15% of the total AUM would be with one AMC, like in India out of 40 lakhs equities, SBI must be having almost like 7-8 lakh crores. So, those kind of consolidated positions will be there on a much more enlarged asset base. When asset base goes from 40 lakh crores to 400 lakh crores, these giants will have their due share in the larger pie also. So that kind of a capital market… and capital market is very, I would say, at least to me it looks like very smoothly compounding and scaling as a GDP of the country grows and the entire system remains intact. So, the capital market opportunity still is a pretty large opportunity and now markets have valued it also somewhat. ADVERTISEMENT When we talked about three years back, valuations were very cheap. Now, people are realising that and it is showing up in the valuation. So, less attractive opportunity than what it was three years back, but nevertheless longer term that opportunity still stays pretty intact. But going to other segments, if the oil price stabilises about $65 or $60, all the OMCs which are there at current, currently available at literally one book or one-and-a-half book, 10 times, 12 times for their size of the businesses that seems to be kind of a great opportunity and it is very early trend. But let us see, I mean the government also has to be supporting in terms of policy making but that looks to be a big trend out here. Raamdeo Agrawal: So, like the real estate looks to be…, real estate, defence, energy transitions, capital market, I mean these are few themes which are coming immediately to my mind, they will grow at more like 20%, 22%, 25%. Even banking, banking on the whole, the kind of policy we are seeing, the regulator wants higher growth, credit growth rate. So, if the 13-14%, if they go back to the trend, credit growth rate, in that case mid-sized banks, well-managed banks they will grow at about 18-20% or more than that. So, yes, I mean, there are whole lot of sectors who will definitely grow. I mean, almost like one-and-a-half times of nominal GDP growth rates. ADVERTISEMENT Raamdeo Agrawal: I mean, you have to be selective what companies you buy because it is a very-very large sector and the companies have their own limitation in terms of execution. Every city has two-three very large realty companies. But then if you look at the whole country, as you go from current $4 trillion GDP to $8 trillion or $20 trillion, the biggest game in town is going to be the real estate company. Anybody makes money anywhere in stock market or anywhere, first thing they go is and splurge in buying a better house, good house and better house. If somebody has two bedroom, he will go for three-bedroom, they will go for better locality. So, real wealth effect of stock market and of the broader economy will be reflected in realty boom and that is what we are witnessing and I mean, it is just about three-four years old kind of thing, till about Covid things were absolutely in dumps. Of course, they have come back from there and a lot of companies are listed also and a lot of companies are going to come up, but in this space we will find some unknown tier III companies or tier II companies or small companies making big splash in next 5-10 years. 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I was talking to some people they were saying that market is dull. What do we do? So, I said expect little lower return and get ready for a bigger return. Longer you wait for a low return, higher will be the return on the back ended. So, this is a time for a little patience, says Raamdeo Agrawal, co-founder of Motilal Oswal Group. ET Now: So, firstly wanted to have your take on how you have seen the markets transitioning throughout these many years and from here on how do you see the market going ahead, your first thoughts on that. Raamdeo Agrawal: Coming back to your question, markets have been actually very resilient if you look at a very long term, 10, 15, 17 years. It has been very predictable market and in last 16 years if you see, we have seen…, 16 years means we are talking about something like post GFC which is about 2008-09. So, after that only Covid has been one of the big breakdown, otherwise market has been very-very nice and scaling up. And from 2020 post Covid, we are seeing virtual boom from 8,000-9,000 post covid correction to now 24,000-25,000, so 3x in five years, so it is a very sustained rise and it is very resilient. I mean, good thing is that not only it is rising, the corrections are very-very shallow and so that is giving the confidence. Even it has given a lot more confidence to retail investors and so, yes, journey has been very good. Raamdeo Agrawal: So, I was talking to some people they were saying that market is dull. What do we do? So, I said expect little lower return and get ready for a bigger return. Longer you wait for a low return, higher will be the return on the back ended. So, this is a time for a little patience. Today market is good, but generally all these geopolitical challenges, the patience is a lot more required whenever the external environment becomes hostile. So, right now we are going through slightly turbulent environment and patience is the key one should… I mean, lot of people have come new in the system, almost like 60-70% people are less than five years into the market. So, they would have not…, their patience will be tested for the first time, so they should be ready to provide that necessary patience, no return kind of a zone for some time and then journey again starts. So, my sincere request to all the new investors would be that they should be ready to provide that patience which is the biggest fertiliser for long-term investing. Live Events ET Now: In last 15 years if I look at ballpark, like we say in Hindi mota-moti gold and equity markets have given almost parallel returns. Now, with gold you have not done any hard work, you always had advantage of liquidity. With equity markets in last 15 years you have taken big knocks of volatility in covid and then in 2013-14. So, if gold has given returns which are almost equivalent to equities, what does that tell you that which asset class will outperform going forward because gold has given you good returns without any stress. Equity has given you all kind of stress and has not given you great returns in 15 years. Raamdeo Agrawal: No, there has been…, a downdraft for the gold must be low. Of course, gold has done much better than I ever thought it will do. One is that there is no outperformance to further gold performance. If gold has done 15% or index has done 15%, I think I must have done at least 20%, so that 5% is not possible in gold. It is only possible in equities and I mean, some of the guys might have done 25%, 30% also, that is not possible in gold unless you leverage and those kind of things. So, yes, I mean, gold has outperformed my own wildest expectation and it has emerged globally also as a very important bucket of value, so the people who believe in gold, of course, it is good news to them. And right now, it looks very, what do you call, bullish, but I would not put anything onto the gold. I am pretty comfortable. One of the things which Mr Buffett said is do what you understand. So, I understand only equities. So, I am pretty good at staying with equities. ET Now: But I was telling someone today that when I met Raamdeo ji three years back on Diwali, he said capital markets is going to be that one structural story and I was just admiring the way that you actually pick up big trends in the market. While capital markets theme is not going anywhere in a hurry hopefully so, but what are the other big trends that you foresee now emerging in the markets? Raamdeo Agrawal: No, I still think capital market remains a big opportunity because it is asset light and it is very scalable and the firms, particularly is the opportunity size is one. Second is the scalability within, what do you call, opportunity itself, like if you look at the global asset management companies, now they do not talk in billions, they only talk in trillions. I mean, like there are $8 trillion, $10 trillion kind of a single asset management company. So, those kind of… As our AUM grows, we will also see that 10-15% of the total AUM would be with one AMC, like in India out of 40 lakhs equities, SBI must be having almost like 7-8 lakh crores. So, those kind of consolidated positions will be there on a much more enlarged asset base. When asset base goes from 40 lakh crores to 400 lakh crores, these giants will have their due share in the larger pie also. So that kind of a capital market… and capital market is very, I would say, at least to me it looks like very smoothly compounding and scaling as a GDP of the country grows and the entire system remains intact. So, the capital market opportunity still is a pretty large opportunity and now markets have valued it also somewhat. When we talked about three years back, valuations were very cheap. Now, people are realising that and it is showing up in the valuation. So, less attractive opportunity than what it was three years back, but nevertheless longer term that opportunity still stays pretty intact. But going to other segments, if the oil price stabilises about $65 or $60, all the OMCs which are there at current, currently available at literally one book or one-and-a-half book, 10 times, 12 times for their size of the businesses that seems to be kind of a great opportunity and it is very early trend. But let us see, I mean the government also has to be supporting in terms of policy making but that looks to be a big trend out here. ET Now: So, I am using the nominal GDP as the benchmark here, 11% to 12%. For next three years which are the businesses because investing like you always say is buying a good business. Which are the businesses which will grow faster than the nominal GDP? Which are the businesses which will grow in and around the nominal GDP? And which are the businesses, themes, or sectors which will grow in single digit? Raamdeo Agrawal: So, like the real estate looks to be…, real estate, defence, energy transitions, capital market, I mean these are few themes which are coming immediately to my mind, they will grow at more like 20%, 22%, 25%. Even banking, banking on the whole, the kind of policy we are seeing, the regulator wants higher growth, credit growth rate. So, if the 13-14%, if they go back to the trend, credit growth rate, in that case mid-sized banks, well-managed banks they will grow at about 18-20% or more than that. So, yes, I mean, there are whole lot of sectors who will definitely grow. I mean, almost like one-and-a-half times of nominal GDP growth rates. ET Now: You have been extremely bullish on real estate, which you have always maintained that it is also a structural story. A lot of the positive is already in the price. The real estate sector is a well discovered sector now. But do you think with RBI's push, with all that RBI is doing with regards to norms now and infra lending, etc, as well, this sector is here to stay and there is still money to be made? Raamdeo Agrawal: I mean, you have to be selective what companies you buy because it is a very-very large sector and the companies have their own limitation in terms of execution. Every city has two-three very large realty companies. But then if you look at the whole country, as you go from current $4 trillion GDP to $8 trillion or $20 trillion, the biggest game in town is going to be the real estate company. Anybody makes money anywhere in stock market or anywhere, first thing they go is and splurge in buying a better house, good house and better house. If somebody has two bedroom, he will go for three-bedroom, they will go for better locality. So, real wealth effect of stock market and of the broader economy will be reflected in realty boom and that is what we are witnessing and I mean, it is just about three-four years old kind of thing, till about Covid things were absolutely in dumps. Of course, they have come back from there and a lot of companies are listed also and a lot of companies are going to come up, but in this space we will find some unknown tier III companies or tier II companies or small companies making big splash in next 5-10 years. ET Now: You have been a big votary of these high digit, high growth businesses, especially the digital businesses. Raamdeo Agrawal: Yes, so that I forgot to tell, but that is one thing which is going to be across, I mean, there is going to be so many companies from the digital side. The way US market is looking today that 8-10 digital companies are kind of a dominating the entire index movement or corporate profitability movement, those movements will also come maybe after five-seven years in terms of significance. ET Now: …say that you need to figure out what is in the price, whether it is good news or bad news, whether it is earnings or whether it is compounding. So as we look into the future and if one has to look at next 12 to 18 months from a market standpoint, what is in the price and what is not in the price. Raamdeo Agrawal: I mean, that is company wise, you have to go very company-wise, listen to the story, eat, drink, and spend time with them and understand their story. At that time you are able to figure out, at least the way I go about doing it is spend a full day with the company, at the end of the day you will be able to figure out whether it is in the price or you are way above the…, I mean, underlying value is more than the price or price is more than the value that you will be able to figure out by spending full day with the company. ET Now: Talk about a theme where question marks have been raised about the viability and the future existence and that is a good old IT services. Massive wealth creators but from given what is happening in AI, the maturity curve, the demand, do you think these stocks will continue to underperform and one should not call them as contra or value buyers at all. Raamdeo Agrawal: I am not too sure that world will go without IT services companies like Infosys, TCS, and all. But AI computing or what AI role…, I mean role of services companies will be changing for sure and they have been changing right throughout, from a complete body shopping in 90s to project implementation and now very large complex projects and now the new angle which has come up is the AI computing. So, I mean how relevant they will be in this new…, and they will be relevant, I do not have any doubts. The issue is, are their role going to go up or they will go through this stagnancy process or some kind of a contraction also. Because it budgets, I mean in my own company IT budgets are not going down, it spend is continuing and it is always short, your projects are not getting completed in time. So, it is not that just AI is coming and eating away all the services, no, it is not happening in real life. Yes, there is some exciting development about the AI, some of the things can be done faster, but I am not the right person to pass a judgment, but I do not think it is down and out kind of situation, no. ETMarkets WhatsApp channel )
