Oil markets are recovering from the US-Israel-Iran shock faster than they did after the Russia-Ukraine war, raising hopes of relief for energy importers like India. But experts caution that cooling crude prices might not offer immediate succour, as higher fuel and production costs have already filtered through the economy and may prove sticky.
Brent crude has fallen over 12% in five days to about $83 a barrel from $94, as reports of a potential US-Iran peace deal eased supply concerns. While no final accord has been signed, Washington and Tehran have agreed to a broad roadmap to end hostilities and reopen shipping through the Strait of Hormuz. Yet crude remains about 12% above its pre-conflict level of $74, suggesting markets still see meaningful supply risks since key issues such as sanctions relief and Tehran's nuclear programme remain unresolved.
Nonetheless, the sharp correction has fuelled expectations that geopolitical risk premiums embedded in oil prices could unwind further if tensions continue to ease.
“Crude oil prices are likely to decline to pre-conflict levels in the low-$70s over the next six months,” Ashwini Shami, smallcase manager, president and chief portfolio manager at OmniScience Capital, said. A combination of rising non-Opec (Organisation of Petroleum Exporting Countries) supply, inventory replenishment and accelerating substitution toward electric vehicles and coal should keep a lid on crude prices, Shami said.
- Brent crude has fallen 27% from its May peak of $113.60.
- This oil shock is fading faster than the 2022 Ukraine episode.
- India's inflation stays sticky as producers pass on earlier cost increases.
- State fuel retailers' losses make pump price cuts unlikely in the near term.
- Commodity sectors account for 40% of FY27 earnings, complicating the math on crude price relief.
Quicker unwinding
As a result, investor response has been markedly different from that seen during the Russia-Ukraine war, when the oil market was already tight. Brent was trading around $90 a barrel in early 2022, amid a post-pandemic demand rebound, years of underinvestment in supply and only gradual production increases by Opec+. Fears of losing one of the world’s largest oil exporters sent crude surging 37% to nearly $134 a barrel just eight days after the conflict ensued.
In contrast, the current conflict erupted when the oil market was much weaker. Brent averaged just $67.4 a barrel in January and February 2026 amid softer global demand and higher spare production capacity. It eventually rose 54% to its peak of $113.6o on 4 May, nearly nine weeks after the conflict began. This suggests that the gradual surge was driven more by fears of disruption following the closure of the Strait of Hormuz than by any actual supply shortage.
The subsequent retreat has been even more telling. Six weeks after its peak, Brent is down 27%. By comparison, it fell only 16% six weeks after its March 2022 high during the Russia-Ukraine war. The sharper retracement suggests investors are absorbing the current shock much faster than they did four years ago.
A March report by brokerage Nirmal Bang further supports that view. It argues that the impact of wars on oil prices has diminished over time. While conflicts before the 1990s often caused years of disruptions, current war-driven oil spikes typically fade within a few months.
The West Asia episode has lasted about three-and-a-half months so far, compared with the four to six months it took oil markets to normalise after Russia's invasion of Ukraine.
Challenges persist
However, a faster normalization in oil prices does not automatically translate into immediate relief for India. Madan Sabnavis, chief economist at Bank of Baroda, noted in a 15 June report that oil and gas production in West Asia could take at least six months to fully recover, keeping crude prices elevated at $80-90 per barrel for the rest of the year.
Inflation may also remain sticky, as crude is still more expensive than a year ago, and many producers have begun passing on higher costs. Moreover, the government might not cut retail fuel prices anytime soon, given the losses oil marketing companies incurred on LPG, aviation turbine fuel and diesel production, Sabnavis noted.
“Therefore, inflation will remain high, excluding the El Niño and low monsoon effects,” he said, adding that policymakers may still need to keep the possibility of future rate hikes on the table, albeit at a later date.
On the flip side, lower crude prices could boost margins in consumer- and investment-oriented sectors by reducing raw-material costs, noted Sanjeev Prasad, managing director and co-head of Kotak Institutional Equities, in a report on Tuesday. Yet a sharp fall in energy and commodity prices may be a drag on India Inc’s overall earnings growth, Prasad warned, given that commodity sectors are expected to contribute nearly 40% of incremental FY27 profits. Consensus estimates peg India Inc's FY27 earnings growth at 10-12%, following earlier cuts of about 5%.
In short, while oil markets appear to be recovering from the latest geopolitical shock faster than they did in 2022, the economic benefits for India are likely to arrive more gradually.