Explained: How US-Israel war with Iran could hit India’s oil, trade and energy security

The escalating conflict between the United States and Israel on one side and Iran on the other has unleashed a fresh wave of geopolitical uncertainty, with far-reaching consequences for global energy markets.

For India — which shares close strategic ties with Israel while maintaining a longstanding historical relationship with Iran — the situation is being closely watched.

At the heart of the energy concern lies the potential disruption of oil and gas flows through the Strait of Hormuz, one of the world’s most strategically critical maritime corridors. Nearly 20–25% of global crude oil supply passes through this narrow channel, which links Middle Eastern exporters to markets across Asia.

For South Asia’s largest economies — India, China, Japan and South Korea — about 40% of crude oil consumption flows through this route.

PM Modi also spoke with UAE President Sheikh Mohamed bin Zayed Al Nahyan and strongly criticised the Iranian attacks. India, however, did not issue an official statement on Khamenei’s killing.

Prime Minister Narendra Modi spoke with Israeli Prime Minister Benjamin Netanyahu after the US-Israel strikes that killed Iran’s Supreme Leader Ayatollah Ali Khamenei. During the call, Modi called for an early cessation of hostilities and conveyed India’s concerns over recent developments, emphasising that the safety of civilians must remain a priority.

What happened in the CCS meeting?

PM Modi also chaired a Cabinet Committee on Security (CCS) meeting on Sunday to assess the evolving situation. The meeting reflected growing concern in New Delhi over the safety of Indian expatriates, travel disruptions and the wider geopolitical and economic consequences of the unfolding conflict.

India’s Director General of Shipping has issued an advisory urging Indian seafarers, recruitment agencies and shipping companies not to deploy Indian crews in Iran amid heightened risks.

Shipping insurance premiums have reportedly surged by nearly 50% overnight, reflecting the volatility. Iran is also said to have relayed warnings to vessels via VHF radio communications, cautioning against passage in certain areas.

India’s Oil Imports

India imports nearly 90% of its crude oil requirements. Of this, approximately 2.5–2.7 million barrels per day (mbpd) — largely sourced from Kuwait, Saudi Arabia, Iraq and the UAE — transit through the Strait of Hormuz.

Following US pressure to restrict purchases of discounted Russian crude over the past few years, India diversified further toward Gulf suppliers, inadvertently increasing its exposure to Hormuz-related risks. That said, India continues to import crude from over 40 countries, including the US, West Africa, Russia and Latin America, giving it flexibility to rebalance supply.

Analysts suggest that the immediate impact on India may be more price-driven than volume-driven. If Iran’s 3.3 million barrels per day production is disrupted, crude prices could rise 9–15%, pushing benchmark oil from $70 per barrel toward $76–81.

For India, every $10 increase in crude prices could widen the annual import bill by $13–14 billion, pressuring the current account deficit and weakening the rupee, analysts said.

Inflation and clean energy implications

Aarti Khosla, Director at Climate Trends, said the strikes validate India’s principle of strategic autonomy and underscore the need to reduce dependence on imported fossil fuels. “Rapid deployment of renewables and clean technologies, she said, is now a strategic necessity rather than merely a climate imperative,” she said.

Vaibhav Chaturvedi, Senior Fellow at Council on Energy, Environment and Water (CEEW) think tank, warned that prolonged conflict would negatively affect the global energy economy and create headwinds for India. He suggested that India leverage its diplomatic relationships to secure cheaper oil in the short term while scaling up electrification in the power and transport sectors for long-term resilience.

The implications extend beyond oil. Iran accounts for roughly 25% of India’s total basmati rice exports, while Iraq accounts for another 20%. Together, they represent over 2 million tonnes of exports valued at more than $2 billion annually. In 2024–25 alone, India exported $1.2 billion worth of basmati rice to Iran. Large pre-war orders had already driven up domestic basmati prices by around ₹10 per kg.

Tea exports could also suffer. India exported tea worth approximately ₹7 billion to Iran last fiscal year.

India’s trade in the Middle East

India’s trade with Middle Eastern nations — including Iran, Bahrain, Kuwait, Qatar and the UAE — amounts to $117.32 billion. The UAE alone accounts for nearly $100 billion of that.

The 2022 India–UAE Comprehensive Economic Partnership Agreement (CEPA), India’s first such accord in the MENA region, had deepened trade integration. Any prolonged instability could disrupt supply chains and bilateral commerce.

Dubai and the UAE have long been viewed as politically insulated commercial gateways in the region. However, the widening conflict risks altering that perception.

Vivek Y. Kelkar, a geo-economics analyst, noted that China purchases roughly 90% of Iran’s crude exports — around 1 to 1.5 mbpd. “If those volumes are curtailed due to tighter sanctions or physical disruptions, China may aggressively bid for Russian, Iraqi, Saudi and West African grades,” he was quoted as saying in a statement by Climate Trends.

“If Beijing pivots toward the same Russian or Atlantic Basin supplies that India relies on for diversification, India’s energy security could become more expensive and more contested. The likely outcome is not deep scarcity, but tighter global balances, higher prices and diminished negotiating leverage for Indian refiners,” he said.

Duttatreya Das, Energy Analyst at Ember, added that recent shifts away from discounted Russian crude combined with fresh West Asian disruptions highlight India’s vulnerability to geopolitical volatility. He suggested this moment offers an opportunity to recalibrate mobility policies, accelerate electrification and expand ethanol blending.