U.S.-Iran Tensions: India Should Worry Only If Oil Prices Reach $80, Market Experts Say

The conversation around high oil prices and its economic impact has returned to the forefront as crude spiked to over $70 per barrel due to elevated U.S.-Iran tensions. But it’s too soon to worry, said market experts, who pegged oil at $80 as their worse-case scenario.

That too, is unlikely, veterans Mark Mobius, Andrew Holland and Richard Harris told BloombergQuint in separate interviews.

“It is possible that Iran may decide to go on a major strike against a major western country but I think that too will be a step too far. I think we have got to realise that Iran does know its own position and will not move too far from it, whatever happens,” Richard Harris, chief executive of Port Shelter Investment Management, said.

Even if we do see some escalation, the impact will be limited, he said, explaining how cheaper shale drilling in the U.S. will keep a lid on oil prices. “There is supply out there. Economies are not demanding a huge amount of oil at the moment so I do think the crude impact will be limited unless we have a major disruption as a result of this. At the moment it looks like that’s not likely to happen,” Harris said.

WATCH | Richard Harris on impact of U.S.-Iran tensions on India

The U.S. and the Islamic Republic of Iran remain gripped in tensions after the latter launched missiles attacking two U.S. military bases in Iraq, in retaliation to an U.S. airstrike that killed Iran’s most powerful general Qassem Soleimani.

Both Trump and Iranian Foreign Minister Javad Zarif, however, showed signs of a possible de-escalation in their tweets on Wednesday.

Oil prices jumped after Iran's retaliation with futures in London briefly surging to almost $72 per barrel. Brent crude rose as much as $3.48 to $71.75 per barrel before trading 1.3 percent higher at $69.17 on the ICE Futures Europe exchange as of 1:07 p.m. in Singapore. WTI climbed as much as 4.7 percent, to $65.65 on the New York Mercantile Exchange, later retreating to $63.47.

Andrew Holland, chief executive officer at Avendus Capital Alternate Strategies, said the worst-case scenario is that oil reaches $80 a barrel in which case all economies will feel the pain, not just India. He also mentioned that it is unlikely.

Under his base-case scenario, oil prices are expected to fall due to weak demand across the globe which then leads to growth which will benefit emerging markets. “Let’s hope that there was not too much damage in the Iraq bases and the retaliation will be less now, maybe just a war of words,” he said.

Global investors are taking the developments in their stride, said Mark Mobius, founder of Mobius Capital Partners, reminding that the conflict is not a new one.

Speaking about rising oil prices and its effect on the subcontinent, he said, “Oil has already surpassed the $70 level. If it goes higher, countries like India who are importers of oil, will be affected so this is something we must consider.”