The prospect of the Indian—as indeed the rest of the world’s economy—being adversely impacted by the raging West Asia conflict that has entered its fifth week is definitely not good news. The economy is being subject to supply-side shocks as happened with Russia’s full-scale invasion of Ukraine four years ago. Just like back then, energy prices have skyrocketed and there is the spectre of a full-blown global food crisis if the ongoing conflict is protracted. Although energy prices moderated within a year of the war in Ukraine, the targeting of oil and gas facilities together with the closure of the Strait of Hormuz in West Asia has triggered the biggest supply disruption and energy security threat in history, according to the International Energy Agency.
Despite parallels, there are major differences with regard to the global food crisis as well. With the Ukraine war, prices of wheat and other essentials spiralled up due to disruption in the Baltic Sea region that hindered exports from Ukraine and Russia. This threatened the food security of the Global South but these adverse risks abated in a year. The West Asian conflict portends a crisis in fertiliser production that hits the global food system if it goes on much further. The Strait of Hormuz is a vital artery for natural gas supplies to produce nitrogen fertilisers and sulphur that is used to make phosphatic fertilisers. Prospects of shortages and higher costs are bound to impact forthcoming global harvests if vital inputs continue to be blockaded in the region.
India is majorly affected by this month-long conflict due to its interdependencies with West Asia. The region meets 40% of its oil and 80% of its gas requirements. There are also trade and investment relationships that are bound to be disrupted by the war. One of India’s largest trading partners is the United Arab Emirates and a free trade deal with the Gulf Cooperation Council is being negotiated. The deepest linkage, however, is the presence of a 10 million-strong diaspora who work in these countries and send home $51 billion annually in remittances—a major source of support for India’s external accounts. If the war drags on, there is the prospect of such transfers diminishing if large numbers of such workers are forced to return home.
But for now, it is the energy shock—with Brent prices remaining above $100 a barrel from the second half of March—that is rippling through swathes of Indian industry that depends on exports to the Gulf and other markets, according to a five-part series done by Financial Express. High crude prices have led to surging costs for leather exporters based in Tamil Nadu as they feed directly into prices of chemicals and solvents needed for processing. Fuel shortages have forced widespread production cuts in the ceramic hub of Gujarat and metal clusters of micro, small, and medium industries in Pune and Ghaziabad. Costlier oil has jacked up raw material prices for manufacturers of plastics, synthetic textiles, and other items, forcing shutdowns.
The uptick in Brent spot prices due to rising geopolitical tensions in West Asia since end-February marks a reversal of a steady downtrend that has seen them decline by one-fifths in 2025. Since mid-March, they remain at $100 plus a barrel after Israel struck Iran’s South Pars gasfield and Tehran retaliated shortly thereafter with an attack on Qatar’s liquefied natural gas facility at Ras Laffan. Markets remain jittery after President Donald Trump’s statements that he would like to take over Iranian oil—as he did with Venezuela after capturing its president—and would obliterate its power facilities if the ongoing pause on the US’s strikes does not result in a deal.
The prospect for costlier oil is bad news for India as it imports 88% of its energy requirements, which would widen its trade deficit and push up domestic prices. As these imports have to be paid for in US dollars, this would result in further downward pressures on the rupee that is testing lows of Rs 95 to a dollar. India must enhance its energy security by building reserves that can take care of disruptions, at least over the short term. The government stated that the country’s oil stocks, mostly with the domestic oil companies, were enough for 74 days. The strategic reserves, however, are modest with just six days of crude stockpiles and must be built.
Above all, the policy imperative must be to aim for greater self-sufficiency through higher domestic oil and gas production over the medium term. Unfortunately, this is not happening, as domestic crude production is steadily falling over time. To be sure, the ruling dispensation is seized of this imperative and is incentivising domestic producers and global giants for exploration and production by enacting the Oilfields (Regulation and Development) Amendment Act, 2025. The eleventh round of the open acreage licensing policy has just been launched, which together with the earlier tenth round, opens up 262,817 square kilometres for exploration. India needs to go all in to boost domestic production to be resilient in coping with energy shocks in the future.
The writer is an economics and business commentator based in New Delhi.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.