War in the Gulf: why oil above $100 is India’s problem first

On February 27, a barrel of Brent crude cost about $72. The next day, US and Israeli strikes on Iran began a war that quickly threatened the Strait of Hormuz, a channel only about 33 kilometres wide at its narrowest point, through which roughly a fifth of the world’s oil normally passes. Iran disrupted shipping in response, prices surged, and India’s import bill was one of the first things economists around the world recalculated.

Why India is so exposed

India imports about 85% of the crude oil it uses, and a large share of that, from Iraq, Saudi Arabia, the UAE and Kuwait, travels through Hormuz. In the year to March 2026, India spent about $175 billion on crude oil and petroleum product imports, its largest single import bill. Strategic and commercial reserves cover roughly 74 days of consumption. That buffer buys time. It does not change the price.

How an oil shock travels

• The trade gap widens. Every sustained $10 rise in oil adds roughly $13–15 billion a year to the import bill, enlarging the current account deficit.
• The rupee weakens. Importers need more dollars to buy the same oil, and foreign investors tend to pull money out of countries facing a bigger deficit.
• Inflation rises. Fuel feeds into transport, farming, plastics and almost everything else, with a lag of a few weeks.
• The government’s budget is squeezed if it chooses to cut fuel taxes or raise subsidies to shield households.

What to watch

Three numbers will tell the story over the coming weeks: the price of Brent, the rupee-dollar rate and India’s current account deficit. If the strait stays disrupted, all three move the wrong way together. The RBI, which had been considering further rate cuts, will now be thinking about inflation instead. A conflict on the other side of the Arabian Sea has just become the most important variable in India’s economy.