From crude to currency: How a strike on Saudi oil refinery could impact Indians

From crude to currency: How West Asia tensions could hurt Indian wallets

Oil markets opened the week in turmoil after Saudi Arabia halted operations at a key refinery and shipping slowed through one of the world’s most critical energy corridors. The twin shocks, a shutdown at Ras Tanura Refinery and disruptions near the Strait of Hormuz, sent crude prices sharply higher and rattled Indian financial markets.

Missile and drone debris forced Saudi Aramco to pause operations at Ras Tanura, a 550,000-barrel-per-day refinery and major export hub on Saudi Arabia’s east coast.

At the same time, tanker movements through Hormuz, the narrow passage that carries about a fifth of global oil supply, slowed as shipowners reacted to escalating US-Israeli strikes on Iran and Tehran’s retaliation. Brent crude jumped roughly 9–13% in a single session into the high-$70s and low-$80s, while West Texas Intermediate rose more than 9% into the low-$70s.

Why Ras Tanura and Hormuz matter

Ras Tanura is among the Middle East’s largest refining and export complexes, integrating processing units with storage tanks and port infrastructure. Even a temporary halt tightens prompt supplies. Layered with shipping risks in Hormuz, markets priced in geopolitical risk before any sustained physical shortage.

Toronto-based finance professional Shah Faisal Shah described the developments as a global “Inflation Nuke,” arguing that “550,000 barrels/day offline + a blocked Strait of Hormuz = A world running on empty.” He added: “Oil +10% in a day = CPI +0.5% in a month,” warning that hopes for aggressive rate cuts have “gone up in smoke with the Aramco tanks.”

While inflation pass-through depends on how long prices stay elevated and how governments cushion fuel costs, sustained crude strength could complicate policy for the Reserve Bank of India (RBI).

RBI’s delicate balance

India’s headline inflation had cooled to well within the RBI’s 2–6% band in recent months, even as growth remained firm. Higher crude risks feed into transport, food, and manufacturing costs, potentially narrowing room for rate easing later this year. Bankers say prolonged tension could also pressure the rupee and bond yields.

The currency, which had stabilised recently, remains sensitive to oil. Analysts warn that a sustained $10 rise in crude could widen India’s current account deficit by 40–50 basis points. India holds strategic and commercial stocks covering around 74 days of consumption and can diversify purchases, but costs and transit times would rise.

India’s exposure to West Asia

India imports nearly 90% of its crude needs. In recent months, West Asia’s share in India’s crude basket has risen, even as Russian supplies fluctuated. Roughly 2.5–2.7 million barrels per day of India-bound crude transits Hormuz, largely from Iraq, Saudi Arabia, the UAE and Kuwait. The route also carries a substantial portion of India’s LPG and LNG imports.

Beyond energy, the Gulf hosts over 10 million Indians across the UAE, Saudi Arabia, Qatar, Kuwait, Oman, and Bahrain, underscoring broader economic and remittance linkages. Trade with the GCC has expanded steadily, with the UAE emerging as one of India’s top partners.

Markets tumble

Indian equities slid as oil spiked. The BSE Sensex and NSE Nifty fell more than 3% in early trade, wiping out trillions of rupees in market value. Midcap and smallcap indices also declined amid risk aversion.

Concerns intensified after reports of limited fire damage at Ras Tanura following intercepted drones. Though the blaze was brought under control, the episode highlighted vulnerabilities at a hub that includes Aramco’s largest export terminal for crude and refined products.

With geopolitical tensions elevated and key sea lanes under strain, traders say the duration and scale of disruption, rather than headline risk alone, will determine whether oil sustains its surge and how deeply the shock filters into India’s economy.