By Dr Sarika Rachuri, and Dr Badri Narayanan Gopalakrishnan
We live in strange mes. As the world order enters a phase of turbulence, historical patterns reemerge, albeit in different locations and geographies, reflecting new power equations. Although the names change, and the actors and alliances have shifted, the underlying economic realities —especially those tied to crude oil have never faded.
The turn of current events today between Iran and its foes evokes memories of the 1973 Yom Kippur War, where a coordinated attack on Isreal was launched by Egypt and Syria. In response to Western support for Israel, Arab oil-producing countries — led by Saudi Arabia — penalised US and its allies with an oil embargo.
The U.S. economy slowed down. The economic ramifications were many. Crude oil prices surged by nearly 300 to 400 per cent. There were rampant fuel shortages, rising prices and stagflation on, upending the prevalent phase of growth and low unemployment for US. Stagflation emerged as the defining macroeconomic puzzle, challenging the Phillips Curve framework that had guided policy thinking for decades. Crude oil dynamics became new instruments of power — and the West bore
the brunt.
Fragmented Map and a Figurative Embargo
Fast forward to 2026. The strategic theatre has shifted. This me, it is the United States and Israel confronting Iran. However, unlike 1973 where Arab oil-producing countries acted in unison against U.S. and Isreal, the geopolitical landscape today finds Arab world fragmented.
There is no formal oil embargo but a figurative one that may emerge, the Strait of Hormuz, through which roughly one-fifth of global oil consumption passes, has become the centre stage. Iran has threatened to block and restrict shipping through the strait which is tantamount to a proverbial embargo. Even the an cipa on of restricted flows introduces a risk premium. Crude Oil again has emerged as a geopolitical fulcrum.
Yet there are differences from the 1970s. The United States is the swing producer with respect to crude oil prices due to the shale revolution. Strategic petroleum reserves exist. Energy markets have evolved with more options. Crude oil faces a structural competition. There has been a fast adoption of Electric Vehicles, particularly in China and parts of Europe. OPEC’s dominance, while discernible, is no longer unilateral.
This does not mean vulnerability has disappeared. It has shifted. Unlike in the seven states where US and West primarily absorbed the economic shock, the vulnerability has shifted to remote locations countries who are passive spectators to this “crude” confrontation.
India’s Dual-Front Economic Battle
In 2026, net energy-importing countries like India, face the unenviable risk of precipitously rising oil prices, current account deficits, currency depreciation, inflationary spillovers, and potential capital outflows during periods of global uncertainty. All this does not augur well for the Indian Rupee, which is already facing risks of depreciation against the U.S. dollar. This also comes in the wake of the second China shock – the country being turned away from the U.S., and having to find
other markets abroad to offload export goods. India, along with South East Asia and other groupings are also affected by this, thereby predisposing the central bank – the RBI, towards a weaker currency vis-à-vis the Chinese Yuan, the other superpower in the world. In this backdrop, the Iran conflict exploded, creating new, if narrower, rivulets of choice. This is the 2nd act instituted by the U.S. in impacting China’s energy sourcing arrangements, the 1st being the change of leadership in
Venezuela.
What this moment reminds us is that while geopolitical groupings may change, weak energy links remain constant in global strategy. The theatre may shift from embargoes to maritime corridors, from coordinated producer blocs to contested straits — but the economic consequences of oil shocks continue to reverberate across continents.
While India looks for a Desert Rose, the crude reality does not. Economic consequences of war and oil shocks reverberate in distant locations. India has been coasting along with ~7% GDP growth, just recovering from the decrease in tariffs by the U.S. on lowering oil imports from Russia. With the Strait of Hormuz being literally barricaded, will India go back to buying more Russian crude oil, and again raise the ire of the U.S., which though, is now distracted with the conflict with Iran?
A desert rose, as elusive as it is, continues to be sought after.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.