New Delhi: India is expected to face oil price volatility and broader macroeconomic effects from the escalating Iran crisis, analysts said, adding the country’s oil supply chain does not yet face structural insecurity.
Rising tensions around the Strait of Hormuz – through which a significant share of India’s crude and LNG imports transit – have already pushed Brent crude prices toward a seven-month high of USD 73 per barrel, adding a geopolitical risk premium to global energy markets and heightening inflation and current account pressures, even as physical supply disruption remains unlikely in the near term.
“In the current escalation scenario, the initial impact is likely to be price-driven rather than volume-driven. A geopolitical risk premium would lift Brent prices, alongside increases in freight rates and war-risk insurance costs,” said Sumit Ritolia, Lead Research Analyst, Refining and Modelling at commodity market analytic firm Kpler.
Even in the absence of physical shortages, landed crude costs for Indian refiners would move higher. For India, this translates into higher import bills and potential macro pressures, while physical availability may remain intact in the near term, he said.
Aditi Nayar, Chief Economist at ICRA, said the situation in West Asia is unfolding, and the extent to which it prolongs and widens would have a bearing on India’s macros, including things like the impact of fuel prices on inflation and the twin deficits, as well as remittances.
Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA Ltd, said, “The escalating conflict in the Middle East and reported attacks on several oil producers are likely to exacerbate volatility in crude oil prices.”
The Strait of Hormuz remains a critical global energy choke point, with nearly 20 per cent of global petroleum liquids and 20 per cent of global liquefied natural gas (LNG) shipments transiting through the route. As Iran and several Middle East energy producers straddle the Strait of Hormuz, any escalation in regional conflict could impede energy shipments through this corridor, he said.
“Any attack on oil and gas production facilities of other major Middle East producers would further aggravate supply concerns. Crude oil prices have already increased from approximately USD 65 per barrel to USD 72-73 per barrel over the past few days, reflecting the build-up of geopolitical tensions in the region,” he said.
“A prolonged and/or widening conflict involving multiple oil and gas producers and disruption at the Strait of Hormuz could adversely impact global crude oil and LNG supplies, potentially leading to a further rise in global energy prices,” he said.
Kpler vessel tracking data showed that 2.5-2.7 million barrels per day, or about 50 per cent of India’s crude imports, transit the Strait of Hormuz, largely sourced from Iraq, Saudi Arabia, the UAE and Kuwait.
“Over the past two to three months, India’s dependence on Middle Eastern barrels has increased as refiners have pivoted away from a portion of Russian volumes. As a result, the relative weight of Gulf-origin crude in India’s import basket has risen, increasing short-term sensitivity to any disruption in Hormuz transit,” Ritolia said.
While rhetoric may price in extreme outcomes, Kpler’s base case does not assume a prolonged full closure of the Strait of Hormuz.
“Temporary slowdowns, rerouting, or heightened maritime security checks are more plausible scenarios.”
A sustained blockade would significantly impact regional producers’ own export revenues, creating strong economic disincentives. “Therefore, volatility risk is elevated, but structural and prolonged supply loss remains lower probability,” he said.
India has diversified its crude sourcing across Russia, the United States, West Africa and Latin America. However, barrels from the Atlantic Basin involve substantially longer voyage durations – typically 25-45 days compared to roughly 5-7 days from the Gulf.
“While diversification provides supply continuity, it comes with higher freight exposure and longer supply chains,” he said, adding Middle Eastern crude therefore retains a clear logistical advantage and remains structurally important to India’s supply stability.
Kpler tracking indicates continued availability of Russian cargoes in the Indian Ocean and Arabian Sea region, including volumes in floating storage.
Should Middle Eastern inflows tighten, Indian refiners could pivot back toward Russian grades relatively quickly.
The presence of “oil on water” in close proximity to Indian ports provides near-term supply elasticity and commercial flexibility. This optionality serves as an important buffer in the event of temporary Gulf disruptions, he said.
“In a contingency scenario, multiple inventory layers provide resilience. India’s Strategic Petroleum Reserves (SPR) would likely be deployed if required, while refiners maintain operational crude stocks that can bridge short-term gaps. In addition, depots, ports and refining systems hold inventories of key petroleum products – including diesel, gasoline, ATF and LPG – which can be managed strategically during disruptions,” he said.
From a domestic pricing standpoint, Ritolia did not expect an immediate increase in retail fuel prices by OMCs in the near term. Although fuel pricing is deregulated, adjustments typically follow sustained crude strength rather than short-lived volatility. The government is expected to closely monitor developments to manage inflationary risks.
“India’s recent pivot back toward Middle Eastern crude has increased its near-term exposure to Hormuz-linked risks. Escalation would most immediately manifest through higher prices, freight and insurance costs, and, at last, outright supply shock (as of now, the probability of supply/production reduction is low).
“While temporary disruptions cannot be ruled out, a prolonged full blockade remains low probability. Diversified sourcing, Russian optionality and layered inventory buffers – including SPR and commercial stocks – materially reduce the risk of sustained physical shortages. The principal near-term vulnerability is therefore price volatility and macro impact, not structural supply insecurity,” he added.
Vasisht said while Indian refiners may be able to source crude oil from alternate locations such as the United States, Africa and South America, elevated energy prices could result in a higher import bill. “Additionally, sustained high crude oil prices are expected to moderate marketing margins and profitability of oil marketing companies.”
PTI
