In the past, oil has moved when supply was threatened or when surplus supplies hit the market. For instance, between 2014 and 2020, the surge in shale oil supplies from the US and Canada led to a sharp fall in crude oil prices; even dipping into negative in 2020. However, by 2022, the price of oil had once again rallied to above $100/bbl due to concerns that the Russia-Ukraine war would dry up supplies in the market. Currently, demand for oil remains tepid globally, and supply remains abundant, even resulting in a supply surplus of nearly 4 million barrels per day. Still, prices have shot up sharply! 

Oil markets panicked as the US moved its Armada fleet into the Arabian Sea. Trump had been trying to coax Iran into a nuclear deal for the last few months, but to no avail. Iran has held that its nuclear program was for energy security and not for weapons, but obviously Trump is not buying that argument. Now, Trump has decided to give a deadline by moving the USS Abraham Lincoln (with top class missile launch facilities) closer to the coast of Iran. Trump has even threatened to launch attacks on Iran shortly if they did not come to the negotiating table. That has spooked oil prices in the last few weeks. 

While the price of oil has gone up in anticipation of attacks on Iran, there are several ifs and buts to the story. Firstly, most of the GCC nations have refused to offer their airspace to the US for launching attacks on Iran. Secondly, there are fears that Iran could launch counter-attacks on key US facilities across the Middle East, creating challenges for most of the Middle Eastern nations. Thirdly, it is still not clear if Iran would go to the extent of blockading the Straits of Hormuz, although it has the capability to block one of the busiest oil conduits in the world, as it impacts Middle East oil exports. Finally, it remains to be seen how other US allies like Turkey, Saudi Arabia, UAE would react to a US assault. 

For India, the big challenge is the impact on the oil import bill and whether the costs would escalate? Most likely, India would revert back to buying Russian crude at lower prices to keep its energy bills in control. But the most interesting outcome would be how the EU would react to the whole story. Will the US tighten tariffs on India and will the UK and EU support the US. Remember, both the UK and the EU are distinctly unhappy with the aggressive noises made by Trump over Greenland. Also, both the UK and the EU have just concluded a free trade agreement (FTA) with India and it would be interesting to see how they react. The hope, of course, is that Brent Crude prices stay under $80/bbl!