A war in the Middle East, a crisis in your wallet

Summary: As the Middle East remains at war, oil prices have shot through the roof, while markets continue to bleed. While the war's impact will affect investors in the short term, many fears have been exaggerated. We discuss them and why the problem may not be as big as it seems.

The US and Iran went to war at the end of February 2026. The details of the conflict are for political analysts to debate, but the economic consequences landed on everyone almost immediately.

Iran sits astride the Strait of Hormuz, a narrow waterway through which roughly one-fifth of the world's oil supply passes every day. Once that waterway became contested, oil markets moved fast. Brent crude, which was trading at roughly $69 a barrel in late January, spiked past $100 within days and briefly touched $119 before pulling back.

For India, the timing is particularly awkward. We import over 85 per cent of our crude oil needs, nearly 4.5 to 5 million barrels per day, and roughly half of that has historically transited the Strait of Hormuz. We had also recently reduced our Russian oil purchases and shifted more sourcing to West Asia, which has only increased our exposure to exactly this kind of disruption.

The risks that are real

Start with the most direct effect: a higher oil import bill. Every $10-per-barrel increase in crude prices adds roughly $14 to $16 billion to India's annual oil imports, according to ICRA. If prices average $110 to $115 a barrel for all of FY27, the additional import burden could run to $56 to $64 billion. That is not a small number for an economy that already runs a current account deficit.

Then comes the second-order effect, which tends to get underappreciated. Oil is not just what you put in your car. It is an input cost for fertilisers, which affects food prices. It is the fuel for trucks that carry everything from vegetables to cement. It is the feedstock for paints, chemicals and plastics. When crude prices rise sharply, these costs move too, not all at once, but in a slow ripple that eventually shows up in the broader inflation numbers. The lag is typically a few months, which is why this qualifies as a medium-term risk even if the conflict itself resolves relatively quickly.

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The rupee adds another layer. India buys oil in dollars. When oil prices rise, we need more dollars to pay for the same volume of imports, which puts downward pressure on the rupee. A weaker rupee then makes those imports even more expensive, a compounding effect. DSP Mutual Fund has estimated that if crude averages $120 a barrel, the current account deficit could widen beyond 3 per cent of GDP and the rupee could face sustained pressure. That feeds back into inflation, borrowing costs, and market sentiment.

For specific sectors, the impact is direct and measurable. Aviation companies face sharply higher fuel bills, which account for roughly 30 to 35 per cent of airline operating costs; IndiGo and Air India are already dealing with this. Paint companies, whose raw materials are largely derived from petrochemicals, face margin compression. Cement, chemicals and logistics players are similarly exposed. Equity markets have begun to correctly reprice these sectors.

The risks that are being overblown

The most dramatic fear circulating right now is that this is a permanent rupture, that the Strait of Hormuz is effectively closed forever, global oil supply chains are broken and we are staring at a structural energy crisis. This is not a serious analysis. The Strait has never been permanently closed in decades of Middle Eastern conflict. China alone imports close to 1.7 million barrels a day through it. India, Japan, South Korea, and every major Asian economy have a strong national interest in ensuring this route reopens. That diplomatic pressure will be relentless and eventually work.

The $119 price spike itself was partly a fear premium, not a pure supply signal. When panic enters a commodity market, prices overshoot. The Brent futures curve, which reflects where traders expect prices to be in 12 or 24 months, has remained far below the spot price spike, suggesting markets are not actually pricing in a permanent disruption. The question is not whether this resolves, but how long it takes and how much damage accumulates in the interim.

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India also enters this shock in better shape than in the past oil crises. Headline CPI inflation had fallen to 2.75 per cent in January 2026, near the lower bound of the RBI's tolerance band. The current account deficit stood at a modest 0.8 per cent of GDP in the first half of FY26. Foreign exchange reserves are adequate. The government has room to partially absorb the shock through fuel tax adjustments, and India can reroute some procurement towards Russian crude; the US has, ironically, even encouraged this as a short-term pressure valve.

What should you actually watch?

Duration is the variable that matters most. A disruption lasting a few weeks is painful but manageable, since India has adequate petroleum reserves and some supply can be rerouted. A disruption spanning several months is a different animal altogether; it begins to embed itself in supply chains, inflation expectations and monetary policy in ways that outlast the conflict itself.

Sectors with direct crude exposure in their cost structures are naturally the most sensitive. Aviation, paints, chemicals and logistics all sit in this category. Oil marketing companies carry a different kind of exposure, caught between rising input costs and the political sensitivity of passing those costs on to consumers. How that tension resolves will have its own downstream effects on inflation and corporate margins.

The bottom line

This is a genuine shock, not a manufactured one. Oil at $100-plus, a weaker rupee and cascading input cost pressures are real risks that will show up in corporate earnings and macro data over the next one to two quarters. The second-order inflation effect, the slow percolation of energy costs through food, freight and manufacturing, is probably the most underappreciated risk right now, and the one most likely to linger.

But the end-of-the-world narrative does not hold up. Too many large economies have too much at stake for this disruption to become permanent. India's macro buffers, while not unlimited, are meaningfully better than in previous oil crises. The spike is real, the risks are real, but so is the world's collective interest in resolving them.

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This article was originally published on March 12, 2026.