Brent commands a war premium as Middle East supply risks keep oil on edge

Global crude oil markets remain highly volatile, with the Brent-WTI spread widening to nearly $12 per barrel as of October 9. Brent crude was trading around $103 a barrel, compared with approximately $90.70 for WTI.

The widening gap reflects the market's growing focus on geopolitical risks and potential supply disruptions in the Middle East. As the benchmark for internationally traded crude, Brent is more exposed to developments affecting global oil flows, shipping routes, and insurance costs. WTI, by contrast, is largely supported by robust North American production. Consequently, the higher Brent premium signals increased concern over global supply security and heightened uncertainty across international energy mark

Hormuz remains the biggest uncertainty

The situation in the Strait of Hormuz remains a key factor supporting Brent crude’s elevated risk premium. Although major supply disruptions have been avoided so far, shipping conditions remain fragile, with continued security concerns and attacks on tankers keeping freight and insurance costs elevated. Given that nearly one-fifth of global oil and fuel trade typically passes through this route, markets are increasingly focused not only on crude production but also on the ability to transport barrels safely and efficiently to end users.

A key mitigating factor has been the recovery of Saudi Arabia’s East-West pipeline, which enables crude exports to bypass the Strait of Hormuz via the Red Sea. Following repairs to damage caused by drone attacks in September, pipeline flows have largely resumed, helping to ease supply concerns and prevent an even sharper increase in Brent prices.

Houthi risk has not disappeared

The threat from Iran-backed Houthi forces remains a significant source of risk for global energy markets. Recent attacks on Saudi infrastructure have again highlighted the vulnerability of oil production facilities, pipelines, and Red Sea export routes. As a result, the market is currently pricing in risks on both sides of the Arabian Peninsula, with concerns surrounding the Strait of Hormuz in the east and Red Sea shipping lanes in the west.

This heightened geopolitical uncertainty helps explain why Brent crude often reacts sharply to political and security developments even when actual oil production remains largely unchanged. At the same time, the availability of emergency oil reserves is helping to contain price gains. Strategic stockpile releases by major consuming nations, along with the option for further coordinated releases if needed, provide an important buffer against potential supply disruptions.

India faces rising energy cost risks

India remains particularly vulnerable to a sustained rise in crude oil prices due to its heavy dependence on imports. The country imported a record 5.26 million barrels per day of crude in September, with Gulf producers such as Saudi Arabia, Iraq, the UAE, Kuwait, Oman and Qatar accounting for nearly 39% of supplies. While Russia continues to be India's largest crude supplier, improved availability from the Middle East has given refiners greater flexibility in sourcing. India has also strengthened its energy security by expanding crude procurement from 27 to 41 countries and leveraging its refining capacity of around 267 million tonnes annually. Even so, higher Brent prices would significantly increase India's import bill and external cost pressures.

Stronger dollar could intensify domestic fuel price pressure

The recent recovery in the US dollar adds another challenge for oil-importing nations. A stronger dollar typically weighs on global oil demand by making crude more expensive for non-US consumers. For India, however, the impact is more pronounced because crude purchases are largely denominated in dollars. As a result, any rupee depreciation alongside Brent prices above $100 per barrel would push up the landed cost of imports. While this raises pressure on domestic fuel economics, an immediate increase in petrol and diesel prices is not inevitable. The eventual pricing response will depend on factors such as the duration of elevated crude prices, currency movements, refining margins, taxes, and the extent of cost absorption by oil marketing companies and the government.

Further rally possible, but upside may be restrained

Crude oil prices are likely to remain highly sensitive to developments in the Middle East, with Brent expected to retain a geopolitical premium as long as risks around key transit routes persist. Any fresh disruption to tanker movements, energy infrastructure, or regional export flows could trigger sharp price spikes. However, recovering Saudi bypass exports, improved Gulf supply availability, and the continued use of strategic oil reserves by major consuming nations should help limit the upside. As a result, oil markets are expected to remain volatile, with prices trading at elevated levels rather than entering a sustained runaway rally. For India, the greater concern is not an immediate supply shortage, but the combined impact of higher Brent prices, elevated shipping costs, and a stronger US dollar, all of which could increase the country's energy import bill and eventually place renewed pressure on domestic fuel prices.