Oil shockwaves: How the Israel-Iran conflict could hit India hard

The recent attacks on Iran’s oil facilities—a direct fallout of the growing conflict between Israel and Iran—have sparked major concerns across global energy markets.

While experts are still assessing the full extent of the damage to Iran’s oil production sites, the effects are already being felt. There’s increasing fear that the tension could disrupt oil supply, push up fuel prices, and lead to higher inflation—not just in wealthy nations but also in developing economies.

Global ripple effects

Iran holds nearly 9% of the world’s proven oil reserves and exports around 1.5 to 2 million barrels of oil daily, mostly to China. Even though Iran’s oil trade isn’t as closely tied to global markets as Saudi Arabia or the UAE, any disruption—especially at the Strait of Hormuz, which carries about 20% of the world’s oil—can shake up the entire global energy system.

Right after the attacks, Brent crude oil prices jumped by over 6%, and West Texas Intermediate (WTI) prices rose by more than 5%. This wasn’t just a reaction to supply concerns—investors are now pricing in the risk of a larger regional conflict, which adds what’s known as a “geopolitical risk premium” to oil prices.

More price hikes ahead?

If the fighting continues, global oil prices could climb even higher. Experts also expect that countries like Australia could see rising fuel prices in the coming weeks, as local petrol rates usually follow international prices with a short delay.

A bigger strategy at play

There’s growing concern that Israel may continue targeting Iranian oil infrastructure to weaken Iran’s economy and stop its support for proxy groups. If these attacks continue, they could severely affect the worldwide supply of oil.

Things could get worse if Iran hits back by blocking key shipping lanes or causing trouble in neighboring oil-producing countries—a move that would slow down global oil deliveries even more.

Asia at risk

Countries that rely heavily on imported oil—especially in Asia—are most vulnerable. India, Pakistan, Indonesia, and Bangladesh get much of their oil from the Middle East and have limited emergency reserves, making them especially sensitive to rising prices or supply issues.

Even China, despite being Iran’s largest oil buyer, could feel the heat. Though it has diverse suppliers and big reserves, a prolonged crisis in the Persian Gulf could raise freight and insurance costs for Chinese oil imports—especially if the Strait of Hormuz becomes unsafe.

This narrow waterway, linking the Persian Gulf and the Gulf of Oman, is the only sea route for oil tankers leaving the Persian Gulf. If it becomes a war zone, oil shipments worldwide could be delayed or blocked.

Trouble for global trade

If the conflict spreads, Iran or its allies could attack ships in the Red Sea, Arabian Sea, or Strait of Hormuz. This would raise shipping insurance costs, cause longer delivery times, and put more pressure on global supply chains. These issues could bring back inflation in many countries, making basic goods and services more expensive.

How this impacts India

India is especially exposed. Over 80% of its crude oil is imported, and much of it comes through the Strait of Hormuz. Any disruption there can immediately cause fuel prices to spike, hurt the trade balance, and push up inflation.

Rupee reacts to oil shock

Following the attack, on Friday, June 13, the rupee opened at 86.14 per US dollar, falling by 54 paise from the previous day’s close of 85.60. This drop happened because rising oil prices increased the demand for US dollars—which oil importers need to pay for shipments.

As the rupee weakens, oil becomes even more expensive, creating a cycle of rising costs. This puts added strain on India’s current account deficit, meaning the country is spending more on imports than it earns from exports.

Experts warn of worse to come

As reported by the Economic Times, JP Morgan has warned that if the conflict worsens, oil could jump to $120 per barrel. While the chances of this happening are currently around 7%, the bank says the price surge could be sudden and severe, driven by panic and a possible spillover into neighboring regions.

LPG, gas, and fertilisers at risk

India’s energy imports are not limited to crude oil. The country also brings in LPG, natural gas, petrochemicals, and fertilisers. If tensions in the Middle East escalate, these supplies could also face disruptions and price hikes.

This is especially worrying for rural India. A shortage of LPG or a rise in fertiliser costs could hit households and farmers hard. Since fertilisers are vital for agriculture, any price rise would increase food production costs, which could then raise food prices and undo recent gains in controlling inflation.

Indian industries to feel the pinch

Several key Indian industries—such as aviation, chemicals, paints, tyres, cement, and logistics—rely on petroleum-based fuels and raw materials. If the prices of essentials like jet fuel, diesel, or naphtha go up sharply, companies will face higher production costs and see a drop in profits.

In short

What’s happening between Israel and Iran isn’t just a political crisis—it’s an economic shock that could touch every part of the Indian economy, from the fuel pump to the farmland, and from global trade routes to the local grocery store.