A month ago exactly, the IEA warned of the greatest oil supply disruption in history as a result of the coordinated strikes by the United States and Israel against Iran's nuclear facilities. The war has been like a slow-motion earthquake for the global economy, with the tremors continuing to come. But for India in particular, it's been a harsh reminder that a fast expanding economy dependent on imports is only as secure as the shipping lane upon which it relies.

This is the Strait of Hormuz. For much of the last 3 months, it has been virtually shut down. The Great Lakes Canal was the Waterway That Moved the World.

On Feb. 28, 2026, the United States and Israel jointly launched an airstrike on Iran that saw the Strait of Hormuz, through which one-fifth of the world's seaborne crude oil and liquefied natural gas previously passed, close. The number of transits of ships through the strait dropped to less than ten per day from more than 130.

The reaction in the immediate market was terrible. Already, the price of Brent crude has risen by some 15% in the first few days of the war, and by the time the market started accounting for a prolonged conflict, it had soared to $120 a barrel. As a result, LNG prices jumped in Asia and South Korea responded by launching a 100 trillion won market stabilisation programme. When the dust settled on March's trading data, Brent had gained its highest monthly percentage ever, some 65% ($46 per barrel) to a new historical record for a single month increase.

The battle did not remain localized. The five LNG carriers that had been dispatched to China were carrying out drill exercises in the Gulf of Oman on July 27, 2019.On July 27, 201 Qatar declared force majeure on LNG exports after missile attacks damaged its Ras Laffan facility. Urea prices are up 50% with potential to impact spring planting in the Northern Hemisphere. What started out as a geopolitical flash point quickly transformed into a full spectrum commodity shock.

The Iran war has been on for 100 days as of this weekend. Negotiations between the US and Iran have stagnated, with Washington and Tehran sending mixed messages on the state of peace talks and both sides periodically exchanging bouts of military attacks. Brent's futures price, the global benchmark, are some 36% higher than the pre-war price, and US West Texas Intermediate futures are still nearly 50% higher.

India's Particular Vulnerability

India had been the most vulnerable in entering this crisis. India imports 85% of its crude of which about half goes through the Hormuz Strait. A $10 crude price escalation is estimated to add 40-50 basis points to India's current account deficit.

Since February the figures have been shocking. The price of the Indian crude oil basket jumped to almost double in a month, from $69 in February to as high as $157 in March. India imports 88% of its crude oil, about half of which normally comes through the strait. More than 60% of LPG produced by the households is imported and 90% of the imports pass through Hormuz. Over half of the LNG imports to India come from Qatar and the UAE via the same route.

India has lost more than 40% of oil flow since the closure of the Hormuz Strait and up to ₹1,000 crore is being lost by the oil marketing companies as the government holds pump prices down for the consumers. The rupee reached a fresh all-time low and foreign investors have withdrawn over $20 billion from Indian stocks so far in 2026, beating last year's full-year outflows.

India's trade deficit increased to $28.38 billion in April, as the energy import bill was on a skyrocketing trajectory. One of the fastest-growing economies in Asia, India has been importing more than 40% of its crude oil since the outbreak of the war and its import bill has surged, while investors have pulled out from capital markets and local currency has reached an all-time-low to the US dollar.

The RBI's Catch-22

The Reserve Bank of India has not been in a more awkward policy situation. India's central bank has one of its biggest interest-rate decisions to make in recent history as the Middle East energy shock, a faltering currency and an unpromising monsoon threaten to decelerate growth while fanning inflation. The rupee has fallen to all-time lows since the Iran war began at the end of February, as a surge in crude prices has hit Asia's third-largest economy, which imports almost 90% of its oil consumption.

The question is one of textbook stagflation: lower the rates in order to provide a stimulus to a slowing economy, and you risk higher inflation and higher rupee depreciation. If you try to hold or raise rates to protect the currency, you risk to strangle an economy that actually outperformed the pre-war period.

Amidst mixed oil-driven inflation pressures and decelerating growth, the Reserve Bank of India (RBI) decided to keep its benchmark short-term lending rate unchanged at 5.25% at its second meeting in a row. The rupee slipped to about 92.6 per dollar, amid continuing uncertainty about the US-Iran ceasefire and oil supply.

If the Strait of Hormuz were to remain closed for more months, India's central bank might have to take monetary policy steps and India might have to eventually increase the price of petrol and diesel, RBI Governor, Sanjay Malhotra said. The last one, a price spike for gasoline, is the one thing the administration doesn't want to happen. Today, India is already facing wholesale inflation at a 3.5-year high and the price of fuel is about 25 per cent higher than the pre-disruption rates, to begin with.

Growth Holds But the Horizon Is Darkening

There was some respite in India's last GDP report. India's economy expanded 7.8% in the January to March quarter compared with a year ago, boosted by strong services growth, which slowed to 8% from 8% in the prior period, but beat market expectations of 7.3%. The overall growth for 2025–26 was 7.7%, compared with 7.1% in 2024–25.

However, those data are before the worst of the oil shock, and the forward guidance seems a lot less robust. The Indian central bank lowered its GDP growth estimates for the fiscal year 2026–27 from 6.9% to 6.6%. The high oil prices are not only likely to push up the input costs and trigger inflation but also increase India's import bill, pushing up the current account deficit to its 14-year peak.

BMI, part of Fitch, projects that India's GDP growth will decelerate to 6.7% in FY26/2027 from 7.7% in FY25/2026 primarily as a result of the oil price shock. The one-percentage-point growth difference, on a $3.7-trillion economy, equates to about $37 billion in lost production, which exceeds any subsidy bill the government may face because of gas price cuts.

ICRA's Aditi Nayar, who has always been one of the saner voices in the macro landscape in India, said it baldly: "In the context of the uncertainty of the resolution of the conflict, a higher energy price for a longer period would be a downside risk for the near term growth with subdued investment demand, impact on corporate profitability and consumer sentiments. The weak monsoon forecast is another risk not related to the Gulf and all connected to the inelasticity of agriculture in rural income.

The worldwide infection is intensifying.

Most of the developing world is in a similar plight to that of India. The effect was that "the global economy has been hit in one wave after another, via the channels of higher energy prices, higher food prices and higher inflation, which will raise interest rates and make lending even costlier," said the Chief Economist of the World Bank. This is now expected to hit an average of 5.1% in developing economies in 2026, which is one percentage point more than the pre-war forecast. The forecast for developing economies has declined 0.4 percentage point from January to 3.6% for 2026.

Energy prices are expected to increase by approximately 24% this year and the impact on fertiliser and food prices will lead to many tens of millions of people being pushed into acute food insecurity.

The advanced world hasn't been spared either. The IMF had previously forecast that world economic growth would be 3.3%. If the conflict persists for several months, it could take up to a half of a percentage point off European Union economic growth alone, some economists estimate. If oil remains in the $90-100 per barrel range, inflation in the developed markets could be as much as 0.8% higher than expected.

In the meantime, the math on supply is bleak. However, rising prices and additional oil disruptions in the Middle East contributed to a 0.8 million bpd year-on-year drop in global oil consumption in March. Demand is expected to drop by 1.5 million bpd in Q2 2026. The supply cuts focus on those shipping via the Strait of Hormuz, and other growth is minimal the US is set to increase non-OPEC+ production by just around 0.5 million bpd.

India's Emergency Workarounds

New Delhi has not been sitting idly by. Indian refiners have been in talks for incremental supplies from the US, Russia and West Africa to keep stocks well supplied in case the Middle Eastern conflict escalates. Analysts caution that the cost structure will significantly deteriorate from higher crude procurement prices; higher freight and insurance costs; and longer shipping routes, while physical crude availability may be maintained through alternative sourcing.

In response, the Government of India cut excise duty on motor fuels, imposed a rationing of the supply of natural gas, exempted from customs duty import of petrochemical products and started bilateral talks with Iran for safe passage of Indian-flagged vessels. In spite of these measures, inflationary pressures continue to grow.

The structural hedge, analysts say, is long-term. A quick answer to Hormuz type disruptions is deployment of renewable energy and reduction in the oil intensity of GDP growth. The numbers of India's renewables additions are significant, but the country's electricity demand growth continues to far outstripping renewables deployments and no solar panel can save a refinery that's starving for feedstock now.

The Duration Argument

Maybe the biggest thing the analyst community doesn't like is the obvious: wars don't work according to market models. The critical risk, according to one market strategist, is one of "sticking around," and with the current scenario looking like a stick-around, economic growth will take a hit and bond yields are likely to remain high, which will make it difficult for stocks to keep pace.

The Strait has not been completely reopened. Negotiations remain deadlocked. And India which has had two quarters of growth resiliency on the back of services exports and domestic consumption is getting to a point where numbers will become less kind. There is no separate crises with the current account trajectory, the subsidy burden on fuel, the foreign outflows and the rupee under 93. It's the same crisis, manifesting itself in different ledgers.

Now that it's been 100 days, the world has acclimatized itself to higher prices. It has not gotten used to the uncertainty of the unknown time of falling. That uncertainty comes at a price as well, for an economy like India's, which is so dependent on imports, and the cost adds up each day, whatever happens in the Gulf.