Crude Hits $84, LNG Doubles: Middle East Crisis Triggers Crisil Alert for Indian Industries

India's credit rating agency Crisil has warned that sectors ranging from basmati rice and fertilisers to airlines, ceramics and downstream oil refiners face tangible credit risks if geopolitical disruptions in the Middle East persist or worsen, according to a credit alert issued on March 5, 2026.

The agency identified three categories of exposure: sectors with direct trade ties to the region, those dependent on imported liquefied natural gas (LNG), and industries whose input costs are linked to crude oil prices.

Shipping Disruption Drives Energy Price Surge

The immediate trigger is the near-halt in vessel movement through the Strait of Hormuz, a critical passage through which 40–50% of India's crude oil imports and 50–60% of its LNG imports are routed. Most shipping vessels stopped sailing the route from March 1, 2026, citing elevated passage risk.

The impact on energy markets has been swift. Brent crude has climbed to around $82–84 per barrel from an average of $66–67 during January–February 2026. Asian spot LNG prices have more than doubled, rising from roughly $10 per MMBtu to $24–25 per MMBtu. Crisil cautioned that a further surge would widen India's current account deficit and fuel inflation.

The Middle East accounts for approximately 30% of global crude oil production and 20% of global LNG output. India imports about 85% of its crude oil requirement and half of its LNG, making it acutely sensitive to disruptions in the region.

Sectors Facing Direct Trade Exposure

India's merchandise trade with the Middle East is substantial, accounting for roughly 15% of total exports and 20% of total imports in the first nine months of fiscal year 2026, according to data from the Ministry of Commerce and Industry.

Basmati rice is among the most exposed commodities. The Middle East and other West Asian countries absorb around 70–72% of India's basmati export volume, which stood at nearly 6 million tonnes in the last fiscal year. Crisil noted that near-term shipment delays are likely, and a prolonged conflict could stretch working capital cycles for exporters through delayed payments. It added that healthy balance sheets among exporters provide some buffer.

Fertilisers face a dual threat. India imports about 30% of its fertiliser requirements, with the Middle East supplying roughly 40% of that volume. The region also provides around 30% of India's imports of key raw materials such as rock phosphate, phosphoric acid and muriate of potash. Because LNG is a feedstock for urea production, supply disruptions or price increases could affect domestic production and raise subsidy requirements beyond budgeted levels.

Diamond polishers are also at risk, with Israel and the UAE together accounting for approximately 18% of India's total diamond exports and 68% of rough diamond imports in the period reviewed. Crisil pointed to alternative trading hubs such as Belgium and Hong Kong as a partial mitigant, though the sector is already under pressure from elevated US tariffs.

Airlines and Travel Under Pressure

Around 10% of flights operated by Indian airlines transit to or through the Middle East. The closure of airspace over the region, including at Dubai — the world's second-busiest international airport — has disrupted operations. Limited flights resumed from March 3, 2026, primarily for evacuation purposes.

Beyond cancelled routes, Indian carriers flying to Europe and the United States now face longer flight paths due to airspace restrictions, increasing fuel consumption. Fuel represents 35–40% of airline operating costs, and Crisil noted that the ability to pass on higher fuel costs is limited, particularly on domestic routes. Rupee depreciation adds another layer of risk given that a large portion of airline lease liabilities is denominated in foreign currency.

For travel operators, roughly 45% of India's outbound travel mix is directed toward the Middle East — about 25% to the UAE, 10% to Saudi Arabia and 10% across Qatar, Kuwait and Oman. Cancellations and postponements are expected to rise, though most charges are insured, limiting direct cash outflows. Crisil said the primary impact would be a shift in revenue recognition into future periods, with some demand potentially redirected to Southeast Asia.

LNG-Dependent and Crude-Linked Industries

Ceramics manufacturers face a two-sided challenge: constrained LNG and LPG supplies could force production cuts, while Middle East export markets, which contribute over 15% of sector revenues, are likely to see a decline in shipments.

City gas distribution companies rely on LNG imports for about 40% of total demand. The industrial segment, which is the most dependent on imported gas, is most at risk of volume loss. Crisil noted that margins would be partly cushioned because competing fuel alternatives are also crude-linked and expected to rise in price.

Downstream oil refiners face pressure on gross refining margins if elevated crude prices cannot be fully passed through to retail fuel prices. Paints and specialty chemicals producers — where about 30% of production cost is crude-linked — may see margin compression if competitive intensity and subdued demand limit pricing flexibility.

In the tyre sector, approximately half of operating costs are tied to crude prices. While tyre makers may be able to raise product prices, a lag is expected, particularly for original equipment manufacturer (OEM) sales, which contribute around 35% of revenue.

Flexible packaging and synthetic textiles have 70–80% of production costs linked to crude, though Crisil assessed the impact as moderate given the current demand-supply environment and firms' established ability to pass on costs, albeit with a delay.

A Few Sectors May Benefit

Not all sectors face headwinds. Crisil noted that upstream oil companies stand to gain from higher crude prices as revenues rise while costs remain largely fixed. Shipping companies, despite higher insurance costs, are likely to benefit from a spike in charter rates driven by reduced vessel availability at the Strait of Hormuz and an increase in tonne-mile demand as ships take longer alternative routes.

Crisil flagged the Red Sea shipping lane via the Suez Canal as a secondary risk. Trade through that corridor has already declined over the past 15–18 months following attacks by Houthi rebels, but remains significant. Any further disruption as a spillover effect of the broader Middle East conflict could compound crude price pressures and add to shipping costs.

Crisil said the near-term impact on most Indian companies is expected to remain contained, citing strong corporate balance sheets as a buffer. However, it warned that a prolonged conflict could amplify the impact through persistently high oil and gas prices and supply chain dislocations that feed into broader inflationary pressures.The agency said it is monitoring developments and will evaluate the credit quality of individual companies on a case-by-case basis.