Half of India’s oil imports at risk as US-Israel strike on Iran raises Hormuz supply fears

Half of India’s oil imports at risk as US-Israel strike on Iran raises Hormuz supply fears

• US-Israel strikes on Iran raise oil supply disruption fears
• Nearly 50% of India's crude imports pass through Strait of Hormuz
• Higher oil prices may increase India's import bill and inflation

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The US-Israel strikes on Iran, which killed Supreme Leader Ayatollah Ali Khamenei and led to Iranian retaliation against Israel and US bases in the Gulf, have pushed oil markets into focus. The concern is possible supply disruption through the Strait of Hormuz.

Brent crude was already trading higher at around $72 to 73 per barrel in late February as tensions rose. For the markets reopening, analysts expect prices to move higher again. If shipping through key routes is affected, crude could move toward $80 or higher.

Global crude demand is estimated at around 105 to 106 million barrels per day, while supply is closer to 108 million bpd, leaving the market with a visible surplus. Commercial and observed inventories are above both the five-year and pre-pandemic (2015-19) averages, with large volumes of crude floating at sea. Crude prices have risen about 7% so far.

For India, the situation brings back familiar risks.

Around 50% of India’s crude imports — about 2.6 million barrels per day — pass through the Strait of Hormuz. Any disruption could raise the import bill, add to inflation, widen the current account deficit, and pressure margins in several sectors.

Experts say spare capacity within OPEC+ could prevent prices from staying elevated for long. Saudi Arabia has indicated it can raise output if needed. However, a prolonged disruption would still have a meaningful impact.

Bhavik Patel, Senior Analyst, Tradebulls Securities, said some geopolitical risk was already priced in.

“WTI was already trading at $68. After this pre-emptive strike, we expect prices to move higher,” she said. “How far crude goes now depends on US actions. If Iran’s export infrastructure is hit or shipping through the Strait of Hormuz is disrupted, global supply could tighten. That could add a $4 to $8 premium.”

He pointed to supply-side support.

“Saudi Arabia has said it is willing to increase capacity if there is supply disruption from Iran. OPEC+ is also expected to raise production from April 1 by about 1,67,000 bpd because of this, the move in crude prices may be sharp but not sustained," Patel added. Prices would remain high only if disruption in the Strait continues, as importers would need longer routes, increasing cost and time.

Ponmudi R, CEO – Enrich Money, said the issue extends beyond geopolitics.

“This starts as an oil issue but quickly feeds into inflation and liquidity for global markets,” he said. Even a short disruption through the Strait of Hormuz could push crude sharply higher. A sustained rise in Brent toward the $83 to $95 range could lift inflation expectations globally. That would complicate central banks’ plans for rate cuts and put pressure on equity markets.

For India, he said every $10 increase in oil prices significantly raises the import bill. It also adds to current account pressure and increases fiscal risks if steps are taken to protect consumers. Oil marketing companies, aviation, paints, autos and logistics could see margin pressure. IT stocks may stay volatile due to global risk-off sentiment.

Strong domestic institutional flows, he added, could help limit broader market damage, keeping this a phase of high volatility rather than a deeper unwind.

Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA Limited, said the conflict would increase volatility in crude prices.

“The Strait of Hormuz is a critical energy route. About 20% of global petroleum liquids and 20% of global liquefied natural gas move through it,” he said. A prolonged or wider conflict involving multiple oil and gas producers could disrupt supplies and push global energy prices higher.

For Indian refiners, sourcing crude from the US, Africa or South America is possible. However, higher crude prices would still raise the import bill.

Elevated input costs would also weigh on marketing margins and profitability for oil marketing companies.

Kunal Sodhani (Broader India Impacts) said nearly 50% of India’s crude — about 2.6 mb/d — moves through the Strait. A sustained 25% rise in oil prices could add around $15 billion to the import bill. It could widen the current account deficit by about 0.3% of GDP, raise inflation by roughly 0.7 percentage points, and reduce real GDP growth by around 0.2% if the situation persists.

Risks also extend to trade and remittances from the Gulf, estimated at $40 to 50 billion a year, and to the 9+ million Indians living in the region. Safe-haven demand could support gold and silver. Equity markets may see risk-off pressure, along with weakness in the rupee. India VIX typically rises 20–40% during such geopolitical events.

Market snapshot for India

Upstream companies (ONGC, Oil India) may benefit in the short term from higher realizations.

Downstream companies and OMCs (IOC, BPCL, HPCL), along with aviation, autos, paints and logistics, face higher input costs and delayed price pass-throughs.

The broader economy faces risks from inflation, current account pressure, fiscal strain and a cautious RBI stance.

On the global side, OPEC+ output increases from April and Saudi spare capacity could limit price gains if disruptions remain brief.

Markets reopen on Monday with volatility expected. Crude futures, tanker movement and any further developments overnight will be closely watched.