Russian crude back in focus for India as Iran war squeezes supply

India is likely to turn back to discounted Russian crude as tensions in West Asia disrupt flows through the Strait of Hormuz. Economists, however, believe India can absorb a short-lived oil shock unless the conflict drags on.

A prolonged conflict risks pushing Brent toward $100 a barrel, widening the current account deficit (CAD) and stoking inflationary pressures.

Although Russian imports had dipped after sanctions tightening and the announcement of India’s interim trade deal framework with the US, supplies never fully halted, with refiners sourcing from non-sanctioned entities. With Gulf supplies now under threat, refiners are considering raising Russian imports, as this remains the most accessible and cost-effective option. The other sources from which procurement will see an uptick are South America and Africa.

Global oil prices rose 10% as the conflict in West Asia intensified and oil supply through the Strait of Hormuz remained disrupted. The April contract of Brent on the Intercontinental Exchange surged over 10% to touch a high of $81.87 per barrel as markets opened on Monday. At the time of writing the article, the contract was 7.78% higher at $78.54 per barrel.

The surge carries significant implications for India, a net importer that meets nearly 90% of its oil requirement through imports. In FY2025, about 50% of India’s crude oil imports and 54% of LNG imports were routed through the Strait of Hormuz.

A spike in natural gas price could push up production cost of urea, the most commonly used fertilizer in India, impacting the government’s subsidy bill.

Natural gas prices surged on Monday, with European benchmark rates reportedly rising nearly 50% after QatarEnergy suspended LNG production following Iranian drone strikes on its two key gas processing facilities.

The development is significant for India, given Qatar’s central role in its LNG basket. In February 2024, Petronet LNG Ltd extended its long-term agreement to source 7.5 million tonnes per annum (mtpa) of LNG from QatarEnergy for another 20 years.

Buffer against oil shock

Economists said India's economy could absorb the impact if the current conflict lasts only a fortnight.

Sensitivity analysis shows every $10 per barrel increase in oil price, if sustained, can impact inflation measured by consumer price index (CPI) and CAD by 0.3-0.4% and hurt growth by 0.15-0.2%, said Sachchidanand Shukla, group chief economist at Larsen & Toubro Ltd.

“However, unless oil prices cross triple digits and look at rapidly move up from there too, India’s macroeconomic fundamentals are strong enough to withstand geopolitical shock from the Gulf region. India’s macro fundamentals are in a much stronger position than the earlier oil shock episodes,” said Shukla.

“Besides, Opec+ grouping has indicated an increase in supplies for April. Global economic growth projected by multilateral agencies in the range of 2.9-3.1% in 2026 also indicates that demand for energy is unlikely to see a major spike,” said Shukla.

India, the world’s third-largest oil buyer, consumes about 5.5 million barrels of crude daily, of which 1.5–2 million barrels pass through Strait of Hormuz. With India already lowering Russian oil imports, West Asia had emerged as the alternative over the past two months.

India’s crude imports from West Asia average 2.5–2.7 million barrels per day (bpd), most of which transit the Strait of Hormuz. Supplies from Russia over the past year have ranged between 1 million and 1.8 million bpd.

According to an analysis by Independent Commodity Intelligence Services, a London-headquartered commodity analysis firm, Brent could approach or exceed $100 per barrel if the strait's closure persists.

A $1 rise in oil price for a year increases India’s annual import bill by around ₹16,000 crore. In FY25, India imported oil worth $160 billion. Given that the oil import expenses comprise around one-fourth of India's total oil import bill, a surge in oil prices can have significant consequences for the Indian economy.

India’s medium-term growth trajectory remains sound and near-term calls for careful macro management, not alarm, said Rishi Shah, partner and economic advisory services leader, Grant Thornton Bharat.

The US–Israel–Iran conflict introduces meaningful near-term macro variability for India, operating through two distinct channels.

First is the physical route: with approximately 50% of India’s crude imports transiting the Strait of Hormuz, any sustained disruption elevates import costs, freight premiums, and insurance burdens, he said. "Second the financial channel—risk-off investor sentiment typically precedes the physical impact, triggering portfolio outflows and currency pressure before supply is actually affected,” Shah said.

“Historical episodes are instructive. Initial estimates of a sustained disruption has the potential to shave off around 0.2% of GDP growth in the affected quarters. What’s different today is India’s structural positioning. This conflict makes every non-Hormuz barrel more strategically valuable, and India’s sophisticated refining capacity—built to process diverse crude slates—allows meaningful supply-side flexibility,” he said.

Madan Sabnavis, chief economist at Bank of Baroda said: "Assuming the price remains higher at $ 10/bbl for the entire year, which looks unlikely, the oil bill can go up theoretically by around $18 billion on annualized basis – an extreme case. Even still, this would amount to around 5-6% of India's trade deficit, based on FY25 trade deficit of $ 282 billion.”

He said this should not be an issue, as it would be just 0.5% of GDP, assuming other things remain the same.

He added that rising prices for refinery products would also create compensatory effects on exports. But even in extreme conditions this can be absorbed under the current account which is at less than 1%, he said.

The stock markets also fell sharply on Monday with the benchmark Sensex closing over 1,000 points lower at 80,238.85 points.

On the exports front, Europe-bound shipments from India are turning costlier and slower as global shipping lines avoid the volatile Gulf and Red Sea corridors, forcing vessels to reroute around the Cape of Good Hope. Pre-conflict freight from Nhava Sheva to northern Europe stood at $1,200–$1,850 per container; all-in costs, factoring in bunker recovery and war-risk surcharges, now exceed $2,500 per TEU (twenty-foot equivalent unit).

A Moody's Analytics report noted that Asia is particularly exposed because it buys the lion’s share of oil and gas produced in the region. Roughly a third of global seaborne crude oil exports pass through the Strait of Hormuz, with most volumes destined for large Asian economies such as China, India, Japan and South Korea.

“A broader or more drawn-out conflict would risk increasing the strain on emerging Asian economies that have, in past years, struggled with external debt repayment. The surge in energy and food prices after Russia’s invasion of Ukraine played a key role in the crises in Sri Lanka, Bangladesh and Pakistan. A sustained disruption to Gulf oil exports or maritime traffic could revive debt concerns,” it said.

Queries emailed to the union ministry of petroleum, Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd, Hindustan Petroleum Corp. Ltd, Reliance Industries remained unanswered till press time.

Mint earlier reported that the union ministry of petroleum and natural gas has been taking stock of the energy supply scenario along with the state-run refiners and are looking at alternatives to meet the local energy demand.

According to traders, who spoke on condition of anonymity, discounts on non-sanctioned Russian oil are now below $5 per barrel, but there are also instances of discounts going up to as high as $30 per barrel, which is largely in the case of sanctioned suppliers. So far, as India has reduced its oil imports, most of the Russian oil has been procured by China.

In February, Russia supplied 1.04 million barrels of oil per day on an average, followed by 1 million bpd by Saudi Arabia and 980,000 bpd by Iraq, according to data from global ship tracking firm Kpler. Supplies from Iraq have significantly dropped from the much higher levels of 1.8 million bpd in November 2025 and 2 million bpd in July 2024. In FY25, Russian supplies to India averaged at 1.8 million bpd.

About 2.7 million barrels oil per day came to India through the Strait of Hormuz, while about 1.06 million bpd came through Bab-el-Mandeb, a 30-km-wide strait separating the Arabian Peninsula (Yemen) from the Horn of Africa (Djibouti), linking the Red Sea to the Gulf of Aden and the Indian Ocean. About 1.025 million bpd of oil came through the Cape of Good Hope and 456,000 bpd through other routes, data showed.

Iran-backed Houthis, a Yemen-based militia have also threatened to block the Bab-el-Mandeb strait, which if happens, would worsen the situation.

Sehul Bhatt, director, Crisil Intelligence, said that if geopolitical issues ease, we expect prices to average $65-70 in CY2026, but prolonged conflict could push prices even higher. If disruptions persist, shipments may be rerouted via the Cape of Good Hope, lengthening transit times and increasing the cost, along with rising freight and insurance premiums."

He noted that the conflict underscored the need for strategic planning to protect India’s energy security.