Oil prices have taken a breather after a sharp 21.74 per cent surge in Brent futures this month (June 2025), driven by geopolitical tensions in the Middle East. While Brent is currently trading at $75.6 per barrel, the possibility of prices testing $120 cannot be ruled out if the Iran-Israel conflict escalates.
For India, a net oil importer, rising crude prices pose significant risks to the economy, currency, and markets. Here are three key risks India should watch as tensions simmer in the Middle East, along with insights into whether $120/barrel is a realistic scenario.
Is $120/barrel a possibility?
Although prices have soared recently, as per Sugandha Sachdeva, Founder of SSWealth Street, it’s mainly due to fears around conflict rather than actual supply issues. In fact, Iran’s crude exports have risen by 44 per cent since mid-June, despite existing sanctions.
An OPEC+ surplus capacity of 5 million barrels a day is available, and any shortage from Iranian supplies can easily be handled. Therefore, the market is well buffered for now unless we’re looking at a substantial supply disruption like a blockade of the Strait of Hormuz, she noted.
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But if Brent were to break into and sustain a price above the range of $78 to $80, speculative buying could set in that would push prices to $100 or even above. Under the worst-case scenario, in fact, with a full-scale conflict being waged or a blockade enforced, price levels could indeed see an upward spike beyond $120 to $125 per barrel.
Sachdeva explains: “The charts suggest something big is brewing. No one wants war, and hopefully it won’t escalate – but price action indicates a potential rally. There could be short-lived corrections, but we’re likely to see upward movement unless peace talks take hold.”
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The Strait of Hormuz – Why does it matter and what it means for India?
Roughly 20 per cent of the world’s oil passes through the Strait of Hormuz. If this crucial route were blocked, it would disrupt oil and gas exports from major producers like Iran, Iraq, Saudi Arabia, and others. While it’s unlikely Iran would block the Strait completely (given its own reliance on oil revenues), even a partial disruption could cause a major spike in global energy prices.
As a major oil importer, India is particularly exposed to rising crude prices. Here are three key risks the country should keep an eye on:
1. Rupee weakness and inflation risks
A sustained rise in oil prices will push up India’s import bill, putting pressure on the rupee and fuelling inflation. At the moment, inflation is at a six-year low, helped by a favourable monsoon – but if oil moves past $95 per barrel, price pressures could return quickly.
A weaker rupee means more expensive imports across the board – not just oil – which could hurt economic stability, widen the current account deficit, and drive up consumer prices.
2. Disruption via the Strait of Hormuz
India sources much of its oil from Iraq, Saudi Arabia, the UAE, and Russia – many of whom export through the Strait of Hormuz. Even though India’s dependence on Iranian oil is minimal (just 0.2 per cent), a blockade could create serious supply chain problems.
This could hit fuel availability and increase costs across several sectors, including paints, cement, and transport. India’s LNG (liquefied natural gas) imports – especially from Qatar – could also be affected.
3. A broader geopolitical escalation
If global powers like the US, Russia, or China get involved, the conflict could spiral into a larger regional crisis. Tensions have already risen with unpredictable rhetoric from US President Donald Trump, including threats to strike Iranian nuclear sites.
If that happens, foreign investors may pull money out of Indian markets more aggressively, hurting equities and adding to currency volatility. According to Sachdeva, the depreciation of the Indian rupee is driven by two key factors — higher crude oil prices and rising geopolitical risks. The latter often triggers foreign institutional investor (FII) outflows from Indian markets, further weakening the rupee.
Currently, FIIs are on track to exit June as net sellers of Indian equities in the cash market, following three straight months as net purchasers. As of June 18, FIIs’ net outflows stand at Rs 4,978.1 crore for the month, in stark contrast with DIIs’ inflows worth Rs 59,230.2 crore, according to provisional exchange data.
Silver Linings: What if prices fall?
It’s not all doom and gloom. If diplomatic talks make progress and tensions ease, oil prices could retreat to around $70 per barrel – taking the heat off India’s economy. India relies on imports to meet about four-fifths of its oil demand.
Lower crude prices would help strengthen the rupee, ease inflation concerns, and narrow the trade deficit – all of which would be positive for markets and growth.
Is this a buying opportunity in oil?
From an investor perspective, crude oil could offer upside if Brent stays above $80. Sachdeva believes the trend is still positive – with any minor corrections likely to be temporary. “This could be a buying opportunity. As of now, we haven’t seen major disruptions in Iran’s exports. And even if we do, Saudi Arabia has the capacity to step in. The real spike would come only if the Strait of Hormuz is blocked,” she said.
She also notes that US oil inventories are 10 per cent below their five-year seasonal average – a sign that underlying demand is stronger than it appears, particularly heading into the summer travel season.
Energy diversification as a strategic strength for India
India has tried to minimise its dependence on any single supplier: it imports oil from Russia, Iraq, the US, and the UAE. Such diversification of sources vanishes in the sudden occurrence of supply shocks. In its ongoing trade talks with the US, India may also discuss limiting oil imports, which would increase India’s energy security and reduce short-term volatility.
