Oil prices hit seven-month high as concerns grow over disruption of supplies

International energy markets are on high alert as escalating tensions between Iran and the United States have pushed crude prices to levels not seen in over half a year. Following reports of large-scale Iranian naval exercises and the partial closure of the Strait of Hormuz, Brent crude surged by $6–$7 per barrel in just a few days, trading at $71.60 as of Tuesday afternoon.

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For India, the world’s third-largest oil consumer, the situation is particularly precarious. New Delhi has already issued a travel advisory for its citizens in Iran, reflecting the gravity of a potential military or logistical standoff in the Persian Gulf.

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The Hormuz Factor: Why 20% of Global Oil is at Risk

The Strait of Hormuz is the world’s most important energy artery. Approximately 21 million barrels of oil per day pass through this narrow waterway.

• Global Share: 20% of global crude and 25% of global LNG.

• The Threat: The Iranian Navy has indicated it is prepared to shut the strait if directed by senior leadership, a move that would effectively “blind” global energy markets.

India’s Vulnerability: The Post-Russia Pivot

India’s energy security has become more concentrated in West Asia recently. Following US sanctions on Russian producers Rosneft and Lukoil, India’s imports of discounted Russian crude have sharply declined.

• Dependency: Out of 5.5 million barrels consumed daily, nearly 2 million barrels originate from or pass through the Strait of Hormuz.

• Primary Sources: Saudi Arabia, Iraq, Kuwait, and the UAE are once again the dominant suppliers in India’s basket.

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The $13 Billion Math: Economic Consequences

According to Prashant Vasisht, Senior VP at ICRA, the fiscal math for India is daunting. If the tensions push oil prices up by another $10 per barrel, India’s oil import bill would swell by **$13–$14 billion**. This would put significant pressure on the Rupee and potentially trigger a spike in domestic inflation, affecting everything from logistics to petrol pump prices.

Reality Check

The “7-month high” headline sounds alarming. Still, oil is still far from the $100+ peaks seen during the initial Russia-Ukraine conflict. Therefore, while $71.60 is a spike, it is currently a “geopolitical premium” rather than a total supply collapse. In fact, global reserves and increased production from the US and Guyana could act as a buffer if the disruption is short-lived.

The Loopholes

Iran has threatened to “shut” the Strait. In fact, a total blockade is notoriously difficult to maintain under international law and would likely trigger a massive US military response. Therefore, the “Partial Closure” loophole—where Iran conducts “exercises” that slow down traffic rather than stopping it—is the more likely tool for leverage. Still, the “Strategic Reserve” loophole allows India to tap into its underground salt cavern reserves for roughly 9.5 days of emergency supply.

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What This Means for You

If you are an everyday consumer, realize that fuel prices at the pump in India are often cushioned by the government, but a sustained Brent price above $75 could force a hike. First, monitor the LPG and LNG prices, as these are often the first to feel the pinch of Hormuz-related supply delays. Then, if you are an investor in aviation or paint stocks, expect volatility as their primary raw material (fuel/crude) becomes more expensive.

Finally, understand that South American and African crude are the only viable alternatives if the Middle East shuts down. You should look for news on India increasing its imports from Brazil or Nigeria to diversify the risk. Before your next long-distance travel, check for any airline fuel surcharges that might be re-introduced if Brent crosses the $80 mark.

What’s Next

The Iranian Navy’s next move after its current naval exercises will be the decisive factor. Then, the US-Iran talks in Geneva on Thursday could either cool the markets or send Brent toward $80 if they fail. Finally, look for the Ministry of Petroleum to hold an emergency review meeting later this week to assess India’s current “Crude Inventory” levels.

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