West Asia conflict: No immediate oil disruption for India; price volatility, macro impact seen

New Delhi: India is unlikely to face any immediate physical disruption in oil supplies despite escalating tensions around Iran and the Strait of Hormuz, but higher crude prices and broader macroeconomic pressures are expected in the near term, officials and analysts said.

Indian refiners currently hold sufficient crude inventories to meet at least 10 days of requirements, with fuel stocks covering another 5-7 days, cushioning the impact of any short-duration disruption. Even as rapidly unfolding developments in West Asia raise geopolitical uncertainty, contingency plans - including tapping diversified suppliers in US, West Africa, Latin America and even Russia as well as strategic reserves - are in place, they said.

The Strait of Hormuz, one of the world's most critical energy chokepoints, handles nearly 20 per cent of global petroleum liquids and about a fifth of global LNG shipments. About 2.5-2.7 million barrels per day, or roughly 50 per cent of India's crude imports, transit through the route, largely sourced from Iraq, Saudi Arabia, the UAE and Kuwait.

Close to 60 per cent of India's LNG imports and almost all of its LPG shipments also pass through the Strait, underscoring its importance to India's energy security.

While a short-lived disruption may have limited supply impact, the immediate fallout is expected to be reflected in oil prices. Brent crude closed near seven-month highs at around USD 73 per barrel, up more than USD 12 per barrel year-to-date amid rising geopolitical tensions. Traders are modelling heightened volatility, with some scenarios pointing towards USD 80 per barrel if supply flows face credible threats.

Iran's state media said February 28 that the Islamic Republic has shut the Strait of Hormuz in response to US and Israeli military strikes.

The closure for a short duration will not have much impact on India as it already has supplies to meet fuel requirement, they said adding in the event of a prolonged disruption or closure of the narrow Strait of Hormuz, the country can recalibrate imports, tapping into its diversified supply sources, including increasing purchases of Russian oil.

Analysts, however, did not expect the Strait to be closed for long as regional powers like Saudi Arabia and Qatar will be economically hit by such an act and could decisively act.

"In case Iran were to force the closure for long, the possibility of a military action by the US and other powers in the region to physically take control of the coastal belt from where the Islamic Revolutionary Guards Corps (IRGC) exercises control of the sea lane, cannot be ruled out," an analyst said.

For now, India is working on the assumption that the closure will be short, lasting less than a week.

"Indian refineries put together hold anywhere between 10 to 15 days of crude inventories, both in tanks and in transit. Besides, all their fuel tanks are full that can easily meet 7-10 days of the country's fuel requirement," an official said. "For now, we think the closure of the Strait of Hormuz will not be very long." Another official said the world has enough crude oil supplies and India can tap sellers as far as Venezuela and Brazil, besides West Africa and the US.

"India had cut purchases from Russia in response to US pressure but we can go back to buying from Moscow in case there is disruption in the Middle East," he said. "The only question is transit time. It takes 5 days for a ship from the Middle East to travel to India while it takes at least a month for those coming from Russia. So it is a question of placing orders well in time." There is also the option of tapping into strategic reserves which hold inventories to meet a week's requirement, he said.

The situation on LNG supplies may turn precarious if the closure lasts long. While near term supplies are secured, a prolonged closure of Strait of Hormuz may leave India with not enough alternatives. This is because unlike crude oil, most LNG volumes are locked in long-term contracts and only limited volumes are available in the spot or current market, another official said.

LNG prices may soar if India, or China - the other big import of fuel from the Middle East - were to tap into alternate supplies, he said.

Similar is the situation with LPG.

The government is closely monitoring the evolving situation and working on alternatives, another official said.

"India's recent pivot back toward Middle Eastern crude has increased its near-term exposure to Hormuz-linked risks. Escalation would most immediately manifest through higher prices, freight and insurance costs and also at last outright supply shock (as of now probability of supply/production reduction is low)," said Sumit Ritolia, Lead Research Analyst, Refining and Modelling at commodity market analytic firm Kpler.

He went on to state that while temporary disruptions cannot be ruled out, a prolonged full blockade remains low probability.

"Diversified sourcing, Russian optionality and layered inventory buffers - including strategic petroleum reserves and commercial stocks - materially reduce the risk of sustained physical shortages. The principal near-term vulnerability is therefore price volatility and macro impact, not structural supply insecurity," he said.

Crude has climbed more than USD 12 per barrel year-to-date amid rising geopolitical tensions. Brent futures settled at USD 72.87 per barrel on February 27, after touching an intraday high of USD 73.54 - the highest level since July 30, 2025.

"In the current escalation scenario, the initial impact is likely to be price-driven rather than volume-driven. A geopolitical risk premium would lift Brent prices, alongside increases in freight rates and war-risk insurance costs," Ritolia said.

Even without physical shortages, higher landed crude costs would raise India's import bill and exert pressure on inflation and the current account deficit, he said.

Aditi Nayar, Chief Economist at ICRA, said the extent and duration of the West Asia conflict will determine its impact on India's macroeconomic indicators, including inflation, fiscal and current account balances, and remittances.

Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings at ICRA Ltd, said escalating hostilities and reported attacks on oil producers are likely to intensify crude price volatility. A prolonged and widening conflict involving multiple producers could further tighten global energy markets, he warned.

Ritolia noted that India's recent pivot back toward Middle Eastern crude has increased its near-term exposure to Hormuz-linked risks, as refiners reduced some Russian volumes over the past few months. However, Kpler's base case does not assume a prolonged full closure of the Strait.

"Temporary slowdowns, rerouting, or heightened maritime security checks are more plausible scenarios," he said, adding that a sustained blockade would hurt regional producers' own export revenues, creating strong economic disincentives.

India has diversified crude sourcing across Russia, the United States, West Africa and Latin America. However, Atlantic Basin cargoes involve significantly longer voyage durations - 25-45 days compared with 5-7 days from the Gulf - making Middle Eastern supplies logistically advantageous.

Kpler tracking indicates continued availability of Russian cargoes in the Indian Ocean and Arabian Sea region, including floating storage volumes.

Should Gulf inflows tighten, refiners could pivot back to Russian grades, though longer transit times would require advance planning.

"In a contingency scenario, multiple inventory layers provide resilience," Ritolia said. India's Strategic Petroleum Reserves, along with operational crude stocks and inventories of key fuels such as diesel, petrol, ATF and LPG, can help bridge temporary disruptions.

From a domestic pricing perspective, analysts do not expect an immediate increase in retail fuel prices, as revisions typically follow sustained crude strength rather than short-term spikes. The government is expected to monitor developments closely to manage inflation risks.

"Escalation would most immediately manifest through higher prices, freight and insurance costs rather than outright supply shock," Ritolia said.

"Diversified sourcing, Russian optionality and layered inventory buffers materially reduce the risk of sustained physical shortages. The principal near-term vulnerability is price volatility and macro impact, not structural supply insecurity." Vasisht added that while refiners can source crude from alternative regions, elevated global energy prices would raise India's import bill and could compress marketing margins of oil marketing companies.