Oil prices hit 6-month high: How US-Iran tensions could disrupt global supplies, with stakes for India

International oil prices have hit a six-month high due to escalating tensions between the US and Iran, and growing concerns that Washington could launch military strikes against Tehran. Earlier this week, the second round of talks between US and Iranian envoys in Geneva over Tehran’s nuclear programme concluded with some progress, although still far from any concrete signs of an understanding that could allay fears of military action. The US has significantly built up its military presence in the region in recent weeks. Moreover, US President Donald Trump said Thursday (February 19) that Iran had 10-15 days to agree to a “meaningful deal” with Washington — a comment that is being interpreted as an ultimatum. Oil markets worry The reason why oil markets appear jittery is the apprehension that military action against Iran could choke oil supplies from the wider Gulf region, which accounts for the lion’s share of global oil exports. At the heart of the apprehensions is the risk that the regime in Tehran, if cornered and posed with an existential threat, could disrupt energy flows via the Strait of Hormuz — a narrow but vital waterway that is a critical chokepoint for global oil and gas flows. The global oil market is currently well-supplied with surplus, which is perhaps emboldening the Trump administration with expectations of minimal impact of strikes on Iran on oil prices. The situation, however, could turn on its head in case of an extended blockade of the strait and the conflict spilling over to the wider region. In addition to Iran, other major Gulf oil producers, like Saudi Arabia, Iraq, the UAE, and Kuwait, are heavily dependent on the strait to feed the global market. Therefore, despite their often-strained relationships with Tehran, some Gulf nations have been actively engaging with the US administration to prevent military intervention. Nevertheless, with tensions between Washington and Tehran refusing to die down and the growing risk of possible US military strikes and regional conflict, benchmark Brent crude prices are over $71 per barrel, over 12% higher than a month ago. How prices behave hereon will depend on whether the US takes military action against Iran, and if it does, how Iran responds. From softening in the event of a US-Iran agreement to reaching triple digits in the worst-case scenario of a regional conflict, nothing seems off the table. For India, one of the top oil importers globally, higher oil prices are never good news. Given India imports around 2 billion barrels of oil annually, every $1 increase in oil prices could increase the country’s already hefty oil import bill by around $2 billion on an annualised basis. According to tanker data, over 40% of crude oil imported by India transits the Strait of Hormuz. Its importance for India’s energy supply and security cannot be understated, as the country is the world’s third-largest consumer of crude oil and depends on imports to meet over 88% of its requirement. ## Strategic significance of the Strait of Hormuz Characterised by the US Energy Information Administration as the world’s most important oil transit chokepoint, the Strait of Hormuz handles approximately one-fifth of global liquid petroleum consumption and global liquefied natural gas (LNG) trade. The narrow waterway between Iran and Oman, connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea, sees roughly 15 million barrels of crude and 20% of global LNG volumes pass through every day. “With a deal looking increasingly difficult to reach, it also means it will be more challenging to find a route to de-escalation, especially following the US military build-up we have seen in the region. And if de-escalation is not possible, the key question will then be what type of action the US takes and how Iran responds to this. For oil markets, the concern is clearly what action would mean not only for Iranian oil supply, but also broader Persian Gulf oil flows, given the risk of disruption to shipments through the Strait of Hormuz,” ING’s commodities strategists Warren Patterson and Ewa Manthey wrote in a recent note. While some pipelines exist in the Gulf States to bypass the waterway, their capacity is restricted. Even at full utilisation, 9 million barrels per day (bpd) — 9% of global demand — would remain structurally at risk during a major escalation, according to industry experts. Iran has, time and again, threatened a blockade of the strait and strikes against tankers transiting it. Moreover, there is also the lurking threat of strikes by Iran’s proxies in Yemen against tankers transiting the Bab el-Mandeb, an alternative maritime choke point that connects the Red Sea to the Gulf of Aden and the Arabian Sea, and is a critical artery for global energy flows that transit the Suez Canal. Risk of Hormuz blockade by Iran, US assumptions While Iran frequently threatens to close the Strait when under pressure, analysts believe a full blockade would be politically self-destructive for Tehran. Such a move could alienate key allies like China, which is the destination for most of Iran’s own oil. A blockade would infringe upon Oman’s territorial waters, souring relations with a neighbour that serves as a vital back-channel for diplomacy with the US. Furthermore, Iran would almost certainly face international military retaliation if it attempted to halt global energy shipments. Notwithstanding these deterrents, the risk of conflict remains. Historically, Iran has shown restraint, even when its nuclear facilities were targeted last year. However, experts warn that if the regime in Tehran feels cornered and fears imminent collapse, the likelihood of the conflict spilling over into the Strait of Hormuz increases significantly. Because West Asia’s energy export system is globally systemic, any such escalation would send energy prices soaring and inflict severe damage on a fragile global economy. Now, the US is apparently interpreting previous confrontations — where military actions did not cause oil prices to spike — to reinforce its current assumptions that future strikes will be similarly low-risk. Such views are also based on the US’s own high oil production levels and Washington’s belief that West Asian heavyweights like Saudi Arabia, the largest oil exporter in the world, can quickly recover from any disruption to keep the global oil market well-supplied, according to experts. “But I worry Washington is lulling itself into a false sense of security. The risk is that US officials might misread Tehran’s risk tolerance to respond far more forcefully to any American attack than it did in the past. If the Islamic Republic feels its survival is at stake, the regional energy industry could become a target. By interpreting past confrontations in ways that reinforce their own current assumptions, US officials risk missing important alternative scenarios,” Bloomberg Opinion columnist Javier Blas wrote in his recent column on the issue. Oil price scenarios if conflict escalates According to projections by Clayton Seigle of the US-based Center for Strategic and International Studies think tank, four primary oil supply disruption scenarios could result from a conflict between the US and Iran, each with distinct price implications. In the first scenario — US or Israel disrupting Iranian oil shipments — Seigle expects oil prices to rise by $10-12 per barrel, primarily due to China seeking around 1.6 million bpd crude from other sources to cover its loss of Iranian barrels. In the second scenario, which would involve Iran targeting the Strait of Hormuz and throttling up to 18 million bpd of non-Iranian energy flows, oil prices could spike over $90 per barrel. If the US or Israel attacks Iranian oil infrastructure like platforms, refineries, and terminals, it would keep Iranian oil off the market for a longer period and could pave the way for further escalation of the conflict. In this third scenario, Seigle believes oil prices could top $100 per barrel. The fourth scenario, of Iran directly attacking Arab Gulf oil facilities, could “lead to a historic oil price spike, potentially higher than the $130 per barrel that was touched in 2022 following Russia’s invasion of Ukraine”, Seigle wrote in his analysis. “President Trump faces a dilemma in how to confront Iran without incurring an unwanted oil supply disruption and gasoline (petrol) price spike. In Operation Midnight Hammer (US strikes on Iran’s nuclear facilities in June 2025) and in the operation to capture Nicholas Maduro, Trump selected military options with low risk of negative consequences. But Scenarios 2 and 4 afford Tehran leverage that could deter Trump from undertaking a major military operation against Iran. Meanwhile, Israel, which launched the Twelve-Day War against Iran last summer, remains a wildcard,” he wrote. Sukalp Sharma is a Deputy Associate Editor with The Indian Express and writes on a host of subjects and sectors, notably energy and aviation. He has over 16 years of experience in journalism with a body of work spanning areas like politics, development, equity markets, corporates, trade, and economic policy. He considers himself an above-average photographer, which goes well with his love for travel. ... Read More