India braces for oil shock as Iran fallout begins

India is set to face renewed oil price volatility and increased macroeconomic headwinds as tensions around Iran intensify, following Israeli and US air strikes over the weekend, and what appears to be an Iranian attack on an oil tanker, north of Khasab Port in the Gulf, the Palau registered Skylight: something of an own-goal for the Iranian regime as the ship was itself hit with US sanctions in 2025 for being an “enabler of Iranian petroleum exports” and is manned by a joint Iranian and Indian crew Bloomberg reports.

Rising friction around the Strait of Hormuz through which much of India’s crude and LNG imports pass has already forced Brent crude prices north, towards a seven-month high of about $73 per barrel.

For now though, until markets open on Monday, March 2, market analysts have argued that, at this stage, the impact will be more about price than the actual availability of crude supplies, according to India's Rediff Moneywiz.

Sumit Ritolia, a Lead Research Analyst in Refining and Modelling at Kpler was quoted as saying “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.”

As such, even without any outright supply disruption, higher freight and insurance costs would substantially raise the landed price of crude for Indian refiners – an eventuality starting to make headlines in Indian media. To this end, for an economy that needs to import in excess of 80% of its oil, a larger import bill will hurt all round.

Aditi Nayar, chief economist at the Credit Rating Agency of India (ICRA), said the ultimate effect on India would depend on the duration and eventual breadth of the conflict in the Middle East, Rediff Moneywiz adds. Prolonged instability would ultimately feed into increased domestic fuel prices and inflation.

Because of this, the next 24 to 48 hours will be critical as countries around the world push for peace and offers of mediation come in.

While falling far short in a head-to-head competition over naval capabilities with the US, Iran has at its disposal huge numbers of surface and airborne drones with the ability of hitting any lightly defended tankers. To do so, however, would only invite a response from the USS Abraham Lincoln aircraft carrier battle group in the region, while causing further geopolitical instability in the region.

Meanwhile, Prashant Vasisht, senior vice-president at ICRA, has already indicated that reported attacks on oil-producing assets in the region had unsettled traders. “Crude oil prices have increased from approximately $65 per barrel to $72–73 per barrel over the past few days, reflecting the build-up of geopolitical tensions in the region,” he said, adding that any broader or longer conflict, particularly one involving multiple producers, could push prices even higher still.

At present, Kpler data shows that between 2.5mn and 2.7mn barrels per day pass through the Strait of Hormuz. This makes up around half of India’s crude imports, and even though India has worked to diversify its sources of late, a shift back towards Middle Eastern suppliers as the country moves away from Russian imports, leaves it vulnerable to issues beyond New Delhi’s control.