The persistence of the 12-day war between Iran and Israel, which resulted in a spike in crude oil prices, would have threated India’s growth and fiscal outlook in the current financial year (FY26), said a monthly economic report (MER) by Finance Ministry on June 27.
Crude oil prices briefly jumped 12 percent during the Iran-Israel conflict—which began on June 13—touching highs of around $78–80 per barrel. However, oil prices quickly retreated to pre-conflict levels—around $65-$66 per barrel—on the countries’ ceasefire decision.
India—a net importer of crude oil—is a highly price-sensitive market as it is dependent on imports for around 90 percent of its domestic requirements. Elevated oil prices led to higher import bill for New Delhi.
The reported highlighted that geopolitical tensions in the Middle East resulted in higher insurance costs for shipments passing through the Strait of Hormuz route, increasing the landed cost of oil for Indian refiners.
Amid rising tensions between the West Asian countries, intensified by US bombing Iranian nuclear facilities, Tehran had threatened to block the Strait of Hormuz—a chokepoint via which 20 percent of global oil supply passes through. This resulted in anxiety in the oil market over supply disruption. Out of the 5.5 million barrels of crude oil which India consumes daily, 1.5-2 million barrels per day (bpd) of crude oil passes through Strait of Hormuz.
“There is an ample global supply of oil, but insurance costs and the perceived risk of potential closure of choke points might cause the landed price to rise. Therein lies the risk to India. For now, the risk has receded. But, it is too soon to sound the “all clear” for the rest of the year,” the report said.
To be sure, media reports suggest that freight costs continue to remain elevated for the Middle East Gulf region, on account of uncertainty in Iran-Israel relations.
Moneycontrol had reported on June 16 that shipping costs for India’s state-run oil marketing companies (OMCs) had increased by 8-9 percent during the conflict, increasing the landed cost of oil for the refiners. However, no disruption in oil supply from the Middle East region was reported.
“These may be nervous but exciting times for the Indian economy. Geopolitics may offer us opportunities that appeared remote previously. It is up to us to be flexible enough to ride the tide,” the report said.
A senior government official had told Moneycontrol during the Iran-Israel conflict that India was likely to exercise 'full flexibility' in sourcing crude to ensure domestic demand is met, adding that decisions on buying of crude oil would be based on pricing.
Though India does not purchase oil from Iran, a significant portion of supplies comes from Saudi Arabia, Iraq, the United Emirates of Arab (UAE) and Kuwait, among others. New Delhi has also significantly diversified its oil supplies as the country now sources oil from 40 nations as compared to 27 countries in 2007.
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