Oil crisis: India's resilience on edge

Workers load LPG cylinders in a truck, in Chikkamagaluru, Karnataka on Tuesday. | Pic: PTI

New Delhi: The Israel–US–Iran war's oil shock, with prices at $116/barrel, Hormuz blockade, and recession fears, threatens global depression per Wood Mackenzie and IMF warnings. India buffers via 8-week reserves, Russian imports, and steady fuel prices, prioritising diplomacy and "Nation First" amid opposition clamour and geopolitical shadows from China–Russia manoeuvres.

The escalating Israel–US–Iran conflict has triggered a global oil crisis that now threatens to plunge the world into recessionary depths. On the tenth day of the war, the International Monetary Fund has urged policymakers worldwide to brace for the fallout, evoking fears of a supply shock dwarfing the 1970s oil embargo.

The blockade in the Strait of Hormuz has stranded around 200 oil tankers at sea, including 37 Indian vessels, crippling a route that carries 22% of global oil shipments. India sources nearly 50% of its crude oil and LNG through this vital passage, heightening risks to its energy security.

Crude prices have skyrocketed to $116 per barrel by day ten, a 60% leap from $72–73 on February 28, when markets were sliding. Attacks on energy infrastructure have exacerbated the chaos: Iran deployed drones against oil and gas facilities, refineries, and storage in Saudi Arabia, Kuwait, Bahrain, the UAE, and Iraq, targeting major refineries in Saudi Arabia and Bahrain, which are key global export hubs. Israel retaliated by striking Iranian oil depots. Anticipating the growing dangers of war, Saudi Arabia, Iraq, Kuwait, and the UAE have reduced production in certain oil fields.

Recession Warnings Mount

Amid soaring oil prices, Scotland-based Wood Mackenzie has warned of a global recession stemming from this war. Its report asserts that if the conflict persists for 15 days, the world economy could slide into a great depression, driven primarily by an oil crisis eclipsing the 1970s shock, and echoes of 1929 haunt the markets.

IMF Managing Director Kristalina Georgieva has warned that if oil prices rise by around 10% throughout the year and hold steady, global inflation could climb by about 0.4%. She added that world output might decline by 0.1 to 0.2% as a result. Rising oil and gas prices tend to have the most profound impact on the global economy.

Price Pressures

Fuel prices have spiked globally: 14% in the US, 6% in Britain, 15% in Australia, 10% in South Korea and China, 20% in Pakistan (petrol at 321 PKR per litre), 22% in the Maldives, and 15% in Sri Lanka, but have increased only by Rs 60 for domestic Indian consumers.

If crude oil prices remain above $100 per barrel for an extended period, petrol and diesel prices in the country could rise by 5–6 rupees per litre. Higher oil costs will inflate freight charges for goods, directly impacting everything from food prices to industrial output.

Geopolitical Shadows

Energy experts foresee prices hitting $150–200 per barrel if the war drags on, amplifying inflation and economic strain. India's Finance Ministry voiced concerns in its monthly review meeting but highlighted ample forex reserves as a buffer. Unanswered questions loom: how long can Iran sustain the fight? Will Gulf states stay neutral? Are Russia and China seeking to prolong this war through indirect support? China has deployed its spy warship to the Arabian Sea, positioning it perilously close to the conflict zone. Beijing remains continuously linked to Iran through its rail–road corridor.

India's prudent stockpiling and non-aligned stance, echoing its Ukraine playbook of pushing peace over partisanship, position it as a beacon of stability. While the world teeters, New Delhi is focused on energy security and citizen welfare.