War, Oil, and India: How will the Israel - Iran war affect India
- Kiran S N
- Jun 16
- 3 min read
The recent Israel-Iran conflict has immediately sent shockwaves through global oil markets. From June 12–16, Brent crude jumped approximately 7% to ~$74.23, back to its April levels. Similarly, WTI surged about 7.6% to $72.98. Even on June 16, both benchmarks remained elevated, with Brent around $74.87 and WTI at $73.74, following early session swings of over $4. Analysts from Goldman Sachs and Citi largely attribute these price increases to a risk premium rather than fundamental supply shocks, expecting stabilisation unless the conflict escalates. However, J.P. Morgan warns that Brent/WTI could breach $100–120/barrel if the Strait of Hormuz is threatened.
Why the panic?
At the heart of this concern lies the Strait of Hormuz, a critical choke point through which roughly 18-20 million barrels of oil per day, about 20% of global oil and LNG flow. While Iran has historically threatened closure without actualising it (e.g., during the 2011 crisis), its potential closure remains a powerful geopolitical lever.
From a strategic perspective, Iran is likely to wield the "Hormuz card" as leverage to influence global oil prices rather than to inflict self-harm by cutting off its vital export routes. The strong U.S./Allied naval presence in the region also makes a full blockade a risky military counter-action. Nonetheless, even the mere threat or minor disruptions like mining tankers or harassing shipping can significantly boost risk premiums, fuelling rapid price spikes driven by market psychology. This creates distinct scenarios: ongoing skirmishes keep prices elevated at $75–80, a threatened Strait pushes risk premiums to $80–90, and a full blockade could skyrocket prices to $100–150+, carrying global recession and stagflation risks. Consequently, oil producers like Saudi Aramco and energy stocks (e.g., Exxon Mobil) gain interest as potential hedges, while consumers and inflation expectations will weigh on central banks, making near-term easing less likely.
How does all this affect India
For India, which imports approximately 85% of its crude oil, this market volatility translates into significant vulnerability. Domestic producers like ONGC (+1.46%) and Oil India Limited (+2%) typically benefit from higher crude price realisations, boosting their revenue and profitability, especially from older, low-cost fields. However, they might face challenges from escalating operational costs or domestic policies designed to cap profits and control inflation.
On the other hand, refiners such as BPCL (-2%), HPCL, and IOCL face direct margin pressures. Higher crude prices erode their gross refining margins (GRMs), especially as they are often pressured by the government to keep pump prices stable, shrinking their marketing margins. This can lead to negative stock reactions for refiners. The paint and chemical industries also feel the pinch, as crude derivatives are key raw materials. Market leaders like Asian Paints and Berger Paints may experience margin compression if crude sustains above $80/barrel, and passing on these costs remains challenging in a competitive market. Furthermore, industrial consumers face increased transportation and energy costs, while for the economy at large, prolonged crude spikes could strain the fiscal budget through higher subsidies or force gradual hikes in petrol, diesel, and LPG prices, directly impacting household budgets and potentially leading to higher WPI and CPI inflation, pushing the RBI towards a more hawkish stance and possibly slowing economic growth.
That being said, India's energy import strategy offers a degree of resilience. Crucially, India does not import oil from Iran. Instead, a significant portion roughly 35-40% of its crude oil now comes from Russia. This diversification, particularly the increased reliance on Russian oil, has likely reduced India's direct vulnerability to potential disruptions in the Strait of Hormuz. This lower dependence on the Strait, combined with India's diversified sourcing, is a probable reason why Indian markets are holding comparatively strong today (16th June 2025) amidst the escalating Middle East tensions.
Disclaimer: This content is for educational purposes only; please conduct your research and consult with a qualified investment advisor before making any investment decisions.
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