Geopolitical tensions escalated sharply this week as US and Israeli strikes on Iran – including the killing of Supreme Leader Ayatollah Khamenei – sent oil prices surging. Brent crude surged over 8% intraday, briefly crossing the $85 per barrel mark, its highest level in nearly 14 months, while WTI crude climbed past $81, according to Bloomberg and ICE Futures data.

The spike followed Iran’s closure of the Strait of Hormuz, a vital shipping route that carries nearly 20% of global oil trade and about 50% of India’s crude imports. Any prolonged disruption, analysts warn, could severely strain global supply chains. Data from India’s Ministry of Petroleum shows that India imports nearly 88–90% of its crude oil needs, consuming around 5.2 million barrels per day (mbpd), making it the world’s third-largest oil importer.

Key Highlights

• Crude oil prices surge after Iran conflict, raising fuel inflation and economic risks for India.
• India braces for higher import costs as Middle East tensions disrupt global oil supply chains.

Indian markets and the rupee immediately felt the pressure. The rupee slid roughly 0.5%, and bond yields rose, as investors feared a “protracted Middle East conflict” and higher fuel inflation. “For India, with close to 90% dependence on imported crude, any sustained rise in Brent prices quickly feeds into higher fuel costs, broader inflation, and a wider current account deficit,” noted Rajeev Sharan of Brickwork Ratings.

Every $1 increase in crude adds roughly $2 billion to India’s annual import bill, straining the trade balance and complicating the RBI’s disinflation path. Jefferies adds, "Over 55% of India’s crude imports originate from the Middle East, while nearly 35% of India’s overseas remittances also flow from the region, intensifying macroeconomic vulnerability."

Oil marketing companies may be forced to revise petrol and diesel retail prices, which have remained unchanged since March 2024. A ₹10 per litre hike in fuel prices could raise transport inflation by nearly 1.5 percentage points, according to CareEdge estimates.

The shock to global supply could push domestic fuel prices higher if sustained. Analysts note oil marketing companies may be forced to raise petrol and diesel prices if crude remains elevated, potentially fanning already rising retail inflation. In parliament and media briefings, Indian officials have sought to reassure consumers. Oil Minister Hardeep Puri reminded lawmakers that India’s strategic reserves – including underground caverns, refinery stocks and floating storage – currently cover about 74 days of demand, providing a buffer against short-term shortages. India currently maintains over 39 million barrels of strategic reserves, with additional capacity expansion underway.

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Looking ahead, OPEC+ has announced a production increase of 180,000 barrels per day from April, while the International Energy Agency (IEA) has indicated readiness to deploy emergency reserves if supply disruptions persist. 

Citi Research forecast Brent trading around $80–90 a barrel in coming days as hostilities play out, easing once shipping through Hormuz resumes. “Until there is assurance that vital routes such as the Strait of Hormuz remain open,” Brickwork’s Sharan cautions, India’s economy will face higher import bills and inflationary pressure. For now, policy makers say they are monitoring closely, with assurances that reserves and diversified imports can bridge any temporary supply gaps.