The jump in prices has started to affect the pre-existing contracts as well—these had been drawn up at lower prices. A prolonged war in West Asia will further push the price of crude, which will affect the viability of business, result in squeezed margins, and disrupt production due to supply chain disruption.

From the aluminium sector to plastic manufacturers, the ripple effects of the escalating Israel-Iran conflict were felt across sectors, with traders and small businesses bracing for a severe impact. 

Surge In Vehicular Fuel Prices Unlikely

Though the prices of vehicular fuels are directly affected by global crude prices, transporters feel that retail prices of petrol, diesel, and CNG have remained, by and large, unchanged, irrespective of global volatility. So, costlier crude is unlikely to have an impact in the near term on the prices of vehicular fuels. Nimish Patel, member of the Managing Committee of the All India Motor Transport Congress, told The Secretariat that even as the price of Brent Crude dropped from over $100 per barrel to nearly $60, there was no drop in retail prices of vehicular fuel and, so, any price surge in the near future is unlikely. “Crude prices globally are determined three months in advance in the futures markets. So, prices are likely to remain stable for a couple of months,” he said.

Meanwhile, the escalating tensions in West Asia have worsened an already depreciating rupee. It was priced at 90.99314 relative to the US Dollar on February 26. It dropped to 92.34 per US Dollar on Monday, March 9. This will make the imports, which have become costlier and scarcer, dearer. The combined effect will further dent the margins.

Israel–Iran Conflict

Brent Crude’s May futures traded at $105.26 on Monday (March 9), a rise of almost 50% compared to $69.81 on February 26. On Monday, it crossed the psychological $100 mark and was trading at $105.26. This is a consequence of the Israel–Iran conflict, disrupting the sea and air traffic with India. War uncertainties have pushed up the price of crude oil on one hand and nearly stagnated the shipments at various ports.

Prices have risen without any surge in demand. There are supply chain uncertainties. We hope for more clarity in the coming days. We do not know how long we will be able to further reduce our margins. It is difficult for players to run their business in such uncertainties

– Jitendra Chopra, president, Aluminium Extrusion Manufacturers' Association of India (ALEMAI)

The aluminium industry requires melting oil, a petroleum derivative, for the melting of raw materials. Its price has shot up from ₹42 per kg to close to ₹51 per kg. A rise in crude prices will increase the cost of production as well.

Moreover, aluminium extrusion players in India rely heavily on scrap (a raw material) imported from Europe and the Far East. Scrap from Europe is routed through the Suez Canal, which has been affected by the war. Consignments are already stuck at various ports. A prolonged crisis could create a shortage of raw materials after about 15 days. 

For the plastic sector, amid rising raw material prices, convincing buyers to agree to a higher price has become the task at hand. 

A price hike shatters our business viability, as we work on 2-3% margins. There will be a severe impact. Prices will increase drastically, not marginally. We have our fingers crossed

– Shailesh Patel, former president, Gujarat State Plastic Manufacturers' Association (GSPMA)

All the more, a surge in crude prices will have a direct impact on the packaging sector, which includes food, beverages, insulation, packaging for bonding and protection, bottles and containers for beverages, oils, wrapping, and packaging products like food, toys, and electronics.