The worst-case scenario in the oil market appears to be unfolding: Brent crude has breached $100 per barrel as the conflict involving the US and Israel and Iran continues to escalate.
The last time oil prices rose to these levels was after Russia’s invasion of Ukraine in late February 2022. This time, however, the disruption could be more severe. West Asia accounts for nearly 30% of global oil output, far higher than Russia’s roughly 10% share.
About a fifth of the world’s oil supply normally passes through the Strait of Hormuz, where traffic has now nearly halted.
India, which meets about 80% of its domestic fuel demand through imports, is therefore facing both a potential supply squeeze and rising crude prices.
Mint calculations comparing movements in petrol, diesel and crude prices show the recent surge in Brent crude far outpacing retail fuel prices, signalling that a price hike may eventually be needed to prevent losses for retailers. The government has so far indicated that fuel prices will not be raised.
Since oil prices largely remained in the $60-75 per barrel range through 2025, there may be some room to absorb the current shock, provided it proves short-lived. Prices of liquefied petroleum gas (LPG), however, have already been increased by ₹60 per 14.2 kg cylinder, taking them to the highest level since 29 August 2023.
According to Nomura, every 10% increase in oil prices could shave 15 basis points off India’s growth and add 50 basis points to retail inflation. With oil prices having nearly doubled from $60 per barrel at the beginning of the year, the impact on India’s growth-inflation dynamics could be significant
The Iran conflict could prove more disruptive to oil markets beyond the initial price spike than the Russia-Ukraine war. During the Ukraine war, petrol and diesel prices in India rose by ₹9-10 per litre between March and May 2022 as crude surged. As crude prices later declined from their peaks, retail price cuts followed soon after.
Even then, because the disruption to global oil trade was largely limited to Russia, it took around eight to nine months for crude prices to settle below $80 per barrel.
The Russia-Ukraine war also worsened India’s inflation trajectory. Consumer Price Index (CPI) inflation rose to 7.8% in April 2022 and remained elevated at 6.63% in 2022–23, well above the 5.5% recorded the previous year.
The conflict involving Iran could worsen India’s inflation outlook.
Retail inflation is already expected to rise to 4.0-4.2% in the first half of 2026-27, according to projections by the Reserve Bank of India (RBI) made before the crisis in West Asia. The current disruptions threaten to push inflation even higher, potentially ending the Goldilocks phase of high growth and low inflation that India enjoyed through much of 2025.