New Delhi: For many Indians, a conflict in the Middle East may seem a geopolitical event that is quite far away. However, for India’s economic prospects, it is closer to home than one might think. Whenever tensions in the Gulf region flare up, one number starts hovering in the minds of businesses, policymakers and financial investors, and that one number is crude oil prices.
The answer is simple: India is one of the world’s biggest oil-importing countries, with more than 85% of its consumption coming from the Gulf region and beyond. The Ministry of Petroleum and Natural Gas reports that India imports about 88% of the crude it needs in FY25, and daily consumption is around 5.5 million barrels of crude oil. Therefore, any disruption to global supplies or shipping routes could quickly inflate India’s import bill, and this has ripple effects throughout the economy.
These new tensions in the Middle East mean that issues of energy security have again grabbed headlines. Although the global oil supply might not be too affected, markets are far more cautious because a large portion of the world’s oil still flows through the Strait of Hormuz, one of the busiest oil shipping routes in the world. Uncertainty over that corridor often causes crude prices and freight to go up.
For India, that matters because the country spent an estimated ₹13-14 lakh crore on crude oil imports in FY25, making petroleum one of the country’s largest import expenses. A sustained rise in oil prices could increase this bill significantly, putting pressure on the trade deficit, inflation and the rupee.
Yet the effects are rarely confined to the petrol pumps.
Higher crude prices mean higher transportation costs across the country for truck operators, logistics companies and several manufacturers. Cement, steel, chemicals, paint, plastics and fertilisers industries are also particularly exposed as petroleum products are large raw materials for these industries, or they are required for production and transportation.
The aviation industry also loses the most. Roughly 35-40% of airline operating costs consists of aviation turbine fuel (ATF). With a prolonged period of higher crude prices, airlines can only respond by raising route and other fares, or accepting lower margins. Shipping companies also feel the blow because of higher fuel and insurance costs, which get passed on to exporters and importers in the form of higher freight charges.
Consumer goods companies feel the squeeze too.
From biscuits and edible oil to packaged foods and household products, transportation and packaging costs to a large degree determine the final price at the cash counter. While the mitigation effect of oilmarketing companies and government policies may smoothen out the impact of short-term swings in petrol and diesel prices, companies cannot handle an increase in input costs over the medium run.
Inflation then becomes the issue.
While the Reserve Bank of India (RBI) has brought inflation within its target band, crude oil is the biggest external threat. Economists say that a persistent rise in input prices in the form of crude oil can raise domestic retail inflation as well as impede a cut in interest rates, thereby hampering the cost of borrowing by businesses, homebuyers and consumers.
But India’s current position is stronger than it was in the decade before.
The country has diversified its crude-sourcing base. In addition to traditional suppliers such as Iraq, Saudi Arabia and the UAE, India has rapidly ramped up purchases from Russia, the US and a handful of African countries, thereby limiting its exposure to any one supplying country and also making refiners more flexible.
India has batted away the possibility of an energy crisis after it expanded its Strategic Petroleum Reserves (SPR), bolstered refinery capacity and spurred new investments in renewable energy, ethanol blending and electric mobility. None of these measures can fully insulate the country from the impact of global oil shocks, but they have helped to mitigate India’s vulnerability in the medium to long term.
That said, crude oil predicts nothing but uncertainty for India’s economy.
For businesses, higher oil prices underpin logistics costs, manufacturing margins, the profitability of the airline sector and consumer demand. For investors, they predict inflation, interest rates and earnings. For households, they eventually shape the price of everything from groceries and e-commerce deliveries to travel and everyday essentials.
Geographically, it may be thousands of kilometres away, but the Middle East has a definite influence on Indian boardrooms, factory floors and family budgets. As long as most of India’s crude comes from abroad, every political shift in the region will continue shaping India’s economy and cost of business.
