Iran Tensions: India Faces Crude Oil Shock

The escalating conflict in West Asia poses a significant economic threat to India, primarily through the potential for soaring crude oil prices. Analysts anticipate that a US attack on Iran could push Brent crude prices above $90 a barrel, a sharp increase from current levels hovering around $72. Such a spike would directly inflate India's annual oil import bill by approximately $1 billion for every $1 increase in crude prices. India imports about 85% of its oil, having spent $161 billion in FY2025.

While India has ceased direct oil imports from Iran due to US sanctions, a global price surge will still strain its finances and widen its fiscal deficit. This situation is compounded by a noticeable drop in oil imports from Russia, previously a discounted source, under mounting US pressure. Russia was India's largest oil exporter in FY25, but imports have fallen 14% year-on-year in the first half of FY26.

Sectors beyond direct oil refining, including aviation, specialty chemicals, paints, petrochemicals, and synthetic textiles, are vulnerable to these rising costs. Companies involved in the trade of basmati rice, fruits, and nuts with Iran may also face disruptions. Although India's direct trade with Iran is minimal, accounting for less than 1% of its total trade, any escalation disrupting Iran's 4-5% share of global crude supply could trigger price volatility. The extent of the impact on these sectors will depend on their capacity to pass on increased costs to consumers.