Statsguru: Turmoil for India as oil price rises amid Iran-Israel conflict

Any move by Iran to restrict shipping there could escalate prices further, intensifying pressure on energy-importing nations like India

The escalating conflict between Israel and Iran has sent shockwaves across global oil markets. Iran's parliament  has approved closure of the Strait of Hormuz -- a vital choke point through which nearly one-fifth of the world’s crude oil and gas is transported. The move, if implemented, is set to escalate oil prices further, intensifying pressure on energy-importing nations like India.

   

Given that India imports close to 90 per cent of its crude oil requirements, further instability in West Asia could hit its economy hard (Chart 1). 

   

To offset oil shocks, India has diversified its supplies, with the share of Russian crude in India’s total oil imports surging from below one per cent in early 2022 to around 38 per cent by May 2025 (Chart 2). 

   

But crude oil still accounts for 15-25 per cent of India’s total monthly import bill (Chart 3). 

   

Despite discounted supplies from Russia, Indian crude oil prices tend to move in close step with global rates. This implies India can offset oil shocks only to an extent (Chart 4). 

   

Such spikes worsen India’s current account deficit (CAD), too. CAD almost doubled to 1.3 per cent of gross domestic product (GDP) in 2024-25 from 0.7 per cent the previous year, though it did not reach an alarming level. As geopolitical instability raises import costs and slows overseas demand for Indian exports, CAD needs to be monitored (Chart 5). 

   

The Iran-Israel conflict does not impact only oil prices. It may have wider implications as the world’s growth slows down, particularly with the US intervening. In a downturn, it becomes difficult to forecast economic growth even by the International Monetary Fund (Chart 6).