Iran–Israel–US Conflict: Implications for India’s Auto Sector

As news broke of the US-Israel strike in Iran and subsequent retaliatory strikes on Gulf neighbours such as the UAE and Saudi Arabia, the geopolitical risk premium, industry jargon for the extra price we pay when the world gets messy, sent crude oil prices on a volatile ride. After climbing to $82, prices have hovered near $79, but analysts warn that a jump to $90 is well within sight if the situation does not cool down quickly.

For Indian motorists, automotive companies and the government alike, the math is painful. Every $1 increase in the price of a barrel of oil adds roughly Rs 12,000 crore to India’s annual import bill.

Sumit Ritolia, Lead Research Analyst, Refining and Modelling at commodity market analytics firm Kpler, is of the view that in the current escalation scenario, the initial impact is likely to be price-driven rather than volume-driven.

Furthermore, while the government may ask state-run oil companies to absorb these shocks initially, this is usually a temporary fix. Eventually, the math prevails and the costs move to the pump over a period of time. For the Indian automotive industry, this is a double-edged sword. Expensive fuel not only strains motorists' monthly budgets but rising logistics costs also fuel general inflation, further pressuring automotive companies.

The Choke Point

The centre of this storm is the Strait of Hormuz, a narrow choke point between Oman and Iran. Though it is 21 miles wide at its narrowest, the actual navigable channel — the deep water where massive tankers can safely sail — is only a few kilometres wide.

About 20% of the world’s oil and a third of its liquefied natural gas (LNG) pass through this narrow passage. For India, the world’s third-largest oil consumer, the stakes are even higher: 50% of its crude oil and 54% of its LNG are currently routed through this single waterway. While the Strait is not officially blocked, ships are already queuing up, paralysed by skyrocketing insurance rates and fears of becoming collateral damage.

Diversity remains key

This crisis comes at a sensitive moment for India’s oil and gas industry. Recently, under pressure from the US, Indian refiners had begun scaling back Russian imports and increasing purchases from Middle Eastern and other suppliers. This shift has inadvertently left India more exposed to the Hormuz route.

If the Middle Eastern supply chain falters, sources indicate India may swiftly return to Russian crude. Russia offers proximity and established logistics that bypass the Gulf’s current volatility. “We are watching the situation closely,” said a senior executive at a major oil marketing company (OMC).

Indian Oil was the largest importer of crude from Russia in January, followed by Nayara Energy and Bharat Petroleum Corporation. Reliance Industries, HPCL and others did not lift oil from Russia during the same period.

Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings at ICRA, remarked that while Indian refiners may be able to source crude oil from alternate locations such as the United States, Africa and South America, elevated energy prices could result in a higher import bill.

“Diversification is the key and we are constantly exploring options. However, it depends on the grade of crude and logistics costs as well,” said an industry executive. He cited the example of restarting crude imports from Venezuela, which had stopped about 5–6 years ago due to US sanctions. Imports have now resumed after receiving US approval, aimed at reducing India’s reliance on Russia.

Sehul Bhatt, Director, Crisil Intelligence, said that OPEC+ paused output hikes for Q1 2026 but plans a modest increase of around 0.2 mbpd from April, which could offer some relief. “However, spare capacity outside Saudi Arabia and the UAE is limited, so the price impact will depend on actual oil flows through the Gulf. This concentration limits short-term supply flexibility,” Bhatt noted.

Three variables at stake

The trajectory of this crisis depends on three variables, according to Kpler. First, Iran’s governance is institutionalised; unlike a typical dictatorship, the system does not collapse simply because a leader is removed, meaning this conflict may not end quickly. Second, export infrastructure must be monitored; if major shipping hubs such as Jebel Ali or Ras Tanura are damaged, the supply impact would be immediate.

Finally, attention must be paid to the $90 mark. If Brent crude stays above $90 for more than a week or two, New Delhi and global markets will be forced to recalibrate policy. In practical terms, this would mean preparing for a more difficult economic environment. For now, Indian motorists can only watch developments and wait for the usual fortnight lag before higher prices reflect at the pump.