Drilling rigs operate at sunset in Midland, Texas, US. Photograph:( Reuters )
A significant rise in crude oil prices may exacerbate the pain on the supply side as well.
For a developing country like India, oil is the lifeline. So will the decision to stop buying Iranian oil hurt India?
On WION Edit, let's look at what this development means for India's policymaking.
One, India did not dump Iran just like that, Saudi Arabia had assured India of steady oil supply before the government decided to stop relying on Iranian crude.
Two, India has found other countries to buy crude oil from. The US itself is just one of the many countries India buys oil from. Crude imports from Nigeria as well as UAE have increased significantly in the last year.
So, is this a test of strategic autonomy?
It is. India has chosen to diversify its partners. This was aimed at achieving autonomy.
Watch: Saudi Aramco oil attacks: Impact on Indian economy
While some critics view the decision to side with the US as a mistake, it's important to remember that the Narendra Modi government had a few alternative choices.
The crude-exporting countries look at their profit margins and that impacts importers like India. That's why India chose to increase its imports from the US.
The tensions between the US And Iran did not help matters too. It would have been difficult for New Delhi to transact with Tehran and Washington simultaneously.
While India views its bilateral relationships with other countries independent of the regional conflicts in West Asia, New Delhi cannot afford to jeopardise ties with the US.
So will this decision prove right or will it land the economy in trouble?
If the remarks of the Oil Minister is anything to go by, India will not be affected in the immediate future.
But if tensions escalate, the Indian government would be forced to increase imports from other countries.
And that's where the US could come in handy.
But the timing of the drone strikes is a cause for concern. Global oil prices surged the most on record after a drone strike on a Saudi Arabian oil facility removed about 5 per cent of global supplies.
The whole global economy is going through a rough phase. India is also seeing the repercussions. A significant rise in crude oil prices may exacerbate the pain on the supply side as well.
New Delhi will need to watch out for the developments over the next few weeks and take immediate measures to compensate for any supply shortage.
(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)