Oil Market Outlook Clouds Amid West Asian Tensions; India at a Critical Chokepoint

Intensified military attacks in West Asia over the weekend have raised concerns over regional stability. The US and Israel attacked Iran, a member state of the Organisation of the Petroleum Exporting Countries (OPEC), which now risks triggering a major crisis in the global supply chain and could even lead to a global economic recession, as per reports.

Producing over 3 million barrels per day in January, Iran was the fourth-largest oil producer. The country also holds strategic importance due to its control over the coastline along the Strait of Hormuz, the global gateway for oil trade.

Earlier, amid mounting threats from the US over a potential attack, Tehran stated that it would choke the global supply chain by shutting down the Strait of Hormuz. In such an instance, currently benign oil prices could shoot above $100 per barrel, according to a CNBC report.

In 2025 alone, over 14 million barrels per day passed through the Strait, a third of which was shipped to major Asian powers, including China, India, Japan, and South Korea. According to reports, a prolonged shutdown of the Strait could lead to a “guaranteed global recession.”

"The conflict in Middle East and reported attacks on several oil producers would exacerbate the volatility in crude oil prices,” Prashant Vasisht, senior vice president and co-group head, corporate ratings, ICRA said. “The Strait of Hormuz is a vital energy choke point through which about 20% of the global petroleum liquid and 20% of the global liquified natural gas passes.”

The ongoing massive military offensive in West Asia has already disrupted commercial aviation across the region, heightening broader instability and fears of geopolitical escalation.

However, a report by Mint, citing market participants, stated that a sharp rise in global crude prices may be capped, as the administration of US President Donald Trump is likely to address demand-supply constraints and may ask Saudi Arabia to step up oil output. Moreover, reports suggest that the US attack on Iran is likely to be limited to nuclear facilities and is unlikely to target Iran’s oil fields.

After being pushed to reduce oil imports from Russia under the recent US-India trade deal, India now finds itself in a difficult position. Rising tensions in West Asia are threatening the Strait of Hormuz.

Although India has emergency oil reserves and sources crude from multiple countries, these measures can provide only short-term relief. If discounted Russian oil supplies decline and shipping routes in West Asia become unstable, India may increasingly rely on the US and South American countries such as Guyana and Brazil.

However, oil from these countries is usually more expensive and must travel longer distances. At a time when India already depends on imports for over 90% of its oil needs, this shift — along with a potential rise in global oil prices due to geopolitical tensions — could sharply increase India’s import bill and put pressure on the government’s finances.

“Additionally, foreign trade may be affected by increased freight and insurance costs, though India’s diversified trade relationships could help mitigate some of the impact,” Manorajan Sharma, chief economist at Infomerics Ratings said.

“If the conflict persists without swift de-escalation, India’s fiscal outlook may face further strain from higher subsidy commitments, subdued disinvestment valuations, and the possibility of expanded social spending to cushion domestic economic pressures.”