India faces a potential energy crisis as the US and Israel's offensive against Iran threatens to disrupt oil supplies through the Strait of Hormuz.
With 90% of its crude oil imported, India could see a sharp rise in oil prices, impacting its economy.
The conflict also risks affecting India's agricultural exports, particularly basmati rice and tea.
India’s energy security has come under intense pressure after the United States (US) and Israel launched a large-scale offensive against Iran on February 28, triggering fears of supply disruptions through the Strait of Hormuz and a renewed surge in global oil prices. For New Delhi, the immediate concern is not direct military spillover but the risk of a sharp energy shock that could ripple through the broader economy.
Iran is the fifth largest oil producer and third largest gas producer in the world, and holds vast reserves of both. Nearly 90 per cent of India’s crude oil requirement is imported, with 2.5-2.7 million barrels per day, largely sourced from Iraq, Saudi Arabia, Kuwait and the UAE, transiting through Hormuz.
Roughly a fifth of global crude and LNG flows pass through this narrow corridor, making it one of the world’s most critical energy chokepoints. Any sustained disruption, whether through military escalation, blockades or insurance restrictions, could send freight rates and crude prices sharply higher.
Matt Maiorana, managing director of organisational strategy at Oil Change International, said, “Trump’s strikes on Iran also threaten to entrench the fossil fuel system that drives the climate crisis. Non-Iranian oil companies have been mostly barred from access for decades due to nationalisation and sanctions.”
A former national energy advisor in the George W Bush administration told Politico recently, “You can imagine our industry going back there — we would get a lot more oil, a lot sooner than we will out of Venezuela.”
Shipping insurance premiums in the region have reportedly jumped by up to 50 per cent amid heightened war risk. Analysts estimated that a sustained $10 per barrel increase in crude prices could raise India’s annual import bill by $13-14 billion, widen the current account deficit and weaken the rupee. Higher fuel prices would cascade into transportation and logistics costs, feeding retail inflation and eventually food prices.
If Iran’s oil output of about 3.3 million barrels per day is disrupted, crude prices could rise 9-15 per cent from a $70 base, potentially moving into the $76-81 range in the near term. More extreme scenarios project even sharper spikes if the conflict widens or shipping routes are directly targeted.
Indian Prime Minister Narendra Modi chaired a meeting of the Cabinet Committee on Security (CCS) on the night of March 2, 2026 to assess the fallout of the escalating conflict in West Asia, with a sharp focus on crude supplies, shipping routes and the safety of Indian nationals in the region.
PTI reported that the CCS discussions included the security of sea lanes, contingency crude sourcing options, adequacy of strategic petroleum reserves and the safety of nearly nine million Indians living across West Asia. Around 10,000 Indians are in Iran and more than 40,000 in Israel.
Beyond crude, India’s liquefied petroleum gas (LPG) supplies are also exposed. A senior official in the Union Ministry of Petroleum and Natural Gas (MoPNG) told Down To Earth that any blockade or sustained disruption could delay cargoes, raise freight and insurance costs and tighten global LPG availability as a significant share of India’s LPG imports passes through Hormuz.
Because LPG contract prices are closely linked to crude benchmarks, a price surge could inflate India’s import bill and increase pressure on subsidy outlays. India sources LPG from a diversified basket across West Asia and beyond, but prolonged instability could strain supply chains and complicate fiscal management. The official added that there is no concern for at least a week and the Indian government will attempt to shield domestic consumers from immediate price transmission.
Around 20 per cent of the world’s oil and LNG moves through Hormuz. Four Asian economies: China, India, Japan and South Korea, account for 75 per cent of oil and 59 per cent of LNG flows through the strait. According to Zero Carbon Analytics, Japan is most directly at risk, followed by South Korea, India and China, given their dependence on imported fossil fuels.
A full blockade could push oil prices to $130 per barrel, matching the 2007-2008 oil shock peak, while Iraq’s Deputy Prime Minister has warned of worst-case scenarios reaching $300 per barrel.
The implications extend beyond hydrocarbons and agriculture. Significant global shipping traffic carrying renewable energy components, e-mobility materials and critical minerals also transits Hormuz. Disruptions could delay clean energy deployment and raise project costs in India.
Elevated oil prices increase demand for dollars to finance imports, putting downward pressure on the rupee and adding to imported inflation. Bilateral trade flows and export performance could come under pressure if instability persists.
Energy analysts argued that the crisis underscores India’s structural vulnerability to imported fossil fuels. Even diversified sourcing, including Russian, US, West African and Latin American grades, cannot fully insulate the country from global price volatility.
Vaibhav Chaturvedi, senior fellow at CEEW, said the conflict would likely drive short-term oil price increases and, if prolonged, dampen global growth. He added that India should use this moment to accelerate electrification of power and transport as a long-term solution to energy insecurity.
Duttatreya Das, energy analyst at Ember, noted that recent shifts away from discounted Russian crude have already tightened supply options. He argued that India cannot afford to remain hostage to geopolitical volatility and should fast-track electrification and expand ethanol blending to reduce oil dependence.
The fallout could also extend beyond energy into key agricultural exports. Iranian importers had placed large orders for Indian basmati rice in the two months before the conflict began, pushing domestic basmati prices up by around Rs 10 per kilogram. Iran accounts for roughly 25 per cent of India’s total basmati rice exports, while Iraq accounts for another 20 per cent, together representing over 2 million tonnes valued at more than $2 billion. In the previous financial year alone, India exported about $1.2 billion worth of basmati rice to Iran.
Prolonged uncertainty, disruptions in shipping routes or payment channels and sanctions-related banking constraints could therefore weigh heavily on rice exports, not only to Iran but across Central Asia, where trade flows are closely linked.
Tea shipments may also face stress. In 2024–25, India exported tea worth around Rs 7 billion to Iran. Any escalation affecting maritime routes, insurance coverage or currency settlements could delay consignments and strain exporters already navigating volatile global markets.
For now, policymakers remain focused on cushioning the economy from volatility and maintaining supply continuity. But as tensions escalate and oil traders react nervously, India once again finds its growth trajectory tied to the stability of a narrow maritime corridor thousands of kilometres away, underscoring how deeply energy security, trade stability and geopolitics are intertwined.