The 2026 Hormuz Crisis: India's Economic Double Squeeze

The Indian economy, indeed the beacon of strength and resilience, is indeed moving along the path of strong growth, while the geopolitical storm continues to brew in the West Asia. This phase is characterized by the subtle interplay between positive internal factors and negative external factors.

The Reserve Bank of India (RBI), a prudent regulator, has prudently maintained its neutral stance by keeping the interest rate unchanged at 5.25%. This is because the RBI, while recognizing the positive Indian inflationary scenario, which comfortably settled within the 4% +/- 2% band in Q4 2025, driven largely by the supply-side management and the moderation in food inflation, is also being cautious in the face of the ominous external scenario. The increase in oil prices (Brent Crude), now trading around $101 per barrel, and the rise in fertilizer prices, driven largely by the West Asian scenario, are indeed the inflationary challenges that the RBI is monitoring.

Going deeper, the agricultural sector continues to be a strong pillar, as the strong monsoon received during the year has ensured reservoir levels are currently at 105% of the 10-year average, which will ensure adequate water supplies for the upcoming Kharif crop, in addition to the strong Rabi crop received during the year. Yet, the elephant in the room continues to be the capital outflow story, which would become a reality if the global interest rates continue to inch upwards or if the geopolitical situation becomes more unstable, which would lead to a further weakening of the rupee. While the RBI reserves are currently healthy at about $700 billion, the free fall of the rupee would inevitably lead to imported inflation, which would force the RBI to eventually raise rates, perhaps in a pre-emptive action, to ensure the stability of the rupee as well.

Petro-Yuan vs Dollar: Is the Oil Market About to Change Forever?

80% of the world’s oil runs on the Dollar… but what if that suddenly changes?

Is the US Dollar losing its grip on global oil trade? 🌍💰

For decades, the Petrodollar system has dominated the global economy, with nearly 80% of oil transactions conducted in USD. But a quiet shift is underway…

Countries like China, Russia, Iran, UAE, and even Saudi Arabia are exploring alternative currencies like the Chinese Yuan, Euro, Yen, and Rupee for oil trade. 📉

The Yuan’s global trade share is rising, and discussions around the “Petro-Yuan” are gaining momentum—especially amid geopolitical tensions like the Iran-Israel conflict.

But can the Yuan really replace the Dollar?

Despite growing adoption, the Yuan still faces major hurdles: Capital controls
Limited liquidity
Lower financial market depth

Meanwhile, the Dollar still dominates: ~40% of global trade

India’s Oil Strategy Just Flipped 2004 vs 2026

What if I tell you that India’s biggest oil supplier today was almost irrelevant just 5 years ago?

Back in 2004, India’s oil imports were heavily dominated by the Middle East. Twenty years later, that basket has transformed into a globally diversified mix, with Russia, Iraq, and even the US now major players.

This isn’t just about who supplies India oil it’s about energy security, trade costs, and inflation.

In 2004, India’s crude imports were almost entirely from West Asia Saudi Arabia, Iran, Iraq, UAE dominating the share.

By 2026, India is importing about 5 million barrels per day, with Russia alone supplying 38%, Iraq around 12%, Saudi Arabia 10%, UAE 8%, and the US about 7%. This is a textbook shift from single‑region dependence to a multi‑source, globally diversified basket.
From an economics lens, this diversification is about risk‑return trade‑offs and supply‑elasticity.

Dependence on one region created high geopolitical risk any conflict or sanction could shift the supply curve left, pushing prices up in India’s inelastic oil market.

Modi Government Slashes Excise Duties on Petrol and Diesel

Amidst rising prices in the international market, the UPA's Manmohan government issued oil bonds worth approximately ₹1.5 lakh crore to provide affordable fuel to consumers. This measure ensured that, during a period of high inflation, the common citizen would not have to directly bear the burden of increased oil prices. This decision also served a secondary objective: it ensured that the government which had already become unpopular due to various scandals would not have to face further political difficulties. In essence, the Manmohan government chose to shift the burden onto the future in order to ease the present.

To repay the very debt incurred through these oil bonds issued by the UPA government to oil companies and which had since ballooned to approximately ₹3.5 lakh crore the Modi government continued to sell fuel to the same consumers at elevated prices for nearly seven to eight consecutive years, even when international oil prices had declined. The Modi government faced significant criticism for this approach. Prime Minister Narendra Modi himself faced personal allegations of favoring oil companies.

Be that as it may.

India is Rewriting its Energy Strategy in Silence

Everyone thinks India is silent on the Iran–Israel war… but what if that silence is actually a strategy?

While rumours scream “fuel crisis,” something very different is happening behind the scenes. No press conferences. No noise. Just calculated moves.

India is quietly reshaping its entire energy playbook.
In the next few days:

 
350,000 tonnes of LPG from the US will arrive.

Argentina is sending another 19,000 tonnes. India has already bought 31,000 tonnes in the first quarter of 2026, in comparison to 22,000 tonnes last year!

 
Fertilisers from Russia and Jordan are on the way for the farm and household sector.

 
And Russia? Still India’s biggest crude supplier despite all pressures from the US.

Iran Allows India, China and Turkey to Transit through the Strait of Hormuz

Imagine a 34-kilometre-wide waterway that carries about one‑fifth of the world’s oil, and then one country suddenly closes it to almost everyone. Post the Iran-Israel war, Iran has done this by blocking the Straits of Hormuz. Now, Iran is opening the Strait of Hormuz again, but only for select nations: India, China, and Turkey.

What does this really mean? It is not just a military move; it’s a deep‑rooted economic power play that will hit the global economy. In this high‑stakes economic game, India is right in the middle.

This isn’t just war news; it’s a textbook case of geopolitics shaping global supply chains, trade costs, and inflation.

Possible Fuel Crisis in India

Amidst the chaos of the Iran-Israel conflict and disruptions to supply chains due to Hormuz blockade, every nation is working around the clock to safeguard its interests and mitigate potential losses. Almost every country in the world is bound to bear the brunt of this war, whether in terms of diplomatic relations, economic relations, or both.

At present, the conflict appears one-sided, though Iran is giving a tough fight due to its strong foundation in ideology, unlike Venezuela. However, this war is still tilting decisively in favour of the combined forces of Israel and the United States. However, once this war concludes, the world will never be the same again. If the conflict remains conventional—and the US refrains from launching a nuclear strike against Iran—it is expected to be a protracted affair. Should the war drag on, President Trump could find himself politically hamstrung following the US midterm elections. This shift alone would fundamentally alter geopolitical dynamics. Within the realm of US domestic politics, very few are willing to align themselves with Donald Trump’s chauvinistic posturing regarding domestic and foreign policy matters. Consequently, once his political standing weakens or he is ousted from power, events are likely to shift rapidly once more, potentially leading to a global "reset."

Iran's Hormuz Blockade and Its Impact on Indian Exports

The Strait of Hormuz crisis poses a serious threat to India, given that its exports to the Gulf amount to 57 billion dollars. Oil imports are being disrupted, and shipments to Europe are being further delayed as fuel prices surge. This growing war may soon blow up the grocery bill!

Strait of Hormuz Crisis

The Strait of Hormuz crisis broke out on February 28 when the US and Israel conducted airstrikes on Iran, killing Supreme Leader Ali Khamenei, in Operation Epic Fury. Iran responded by launching missiles on US bases, Israeli cities, and Gulf countries such as the UAE and Bahrain, and shutting down the Strait on March 2, stopping maritime traffic. About 2.5 million barrels per day, which is 50% of India’s oil import, passes through the Strait of Hormuz primarily from Kuwait, UAE, Saudi Arabia and Iraq. This is driving oil and gas prices up in India.

Impact on Oil and Fuel Prices

India imports about 5 million barrels per day of oil from other countries, of which 2.5 million bpd passes through the Strait of Hormuz. This has made India’s situation vulnerable to continued blockade. The 40 per cent of the east-bound oil flows are blocked, and gasoline and diesel prices have soared 15-20 per cent since early March, driving inflation in transport and food prices.

Impact of Iran-Israel War on Indian Exports to Iran

India’s exports to Iran are now facing serious uncertainty because of the escalating conflict between Iran and the US-Israel Joint Force.

Iran has been an important market for Indian goods. In 2024, India exported products worth about 1.25 billion dollars to Iran. Indian exports include basmati rice, tea, sugar, pharmaceuticals, and electrical machinery.

But this war has disrupted these trade flows. Hundreds of thousands of tonnes of Indian basmati rice are currently stuck at ports or in transit, as shipping routes and insurance coverage have been disrupted.

Possibility of De-dollarization and its impact on the World

There has been a lot of hue and cry about De-dollarization post reckless tariffs imposed by the Trump Administration, but de-dollarization is still in the realm of rhetoric, and not in reality. The demand for US bonds is increasing, especially in the wake of the rise in geopolitical tensions and uncertainty.

Dollar's Enduring Dominance

The US dollar is the most dominant reserve currency in the world. It constitutes 58% of the total reserves. Presently, nearly 90% of the total Forex transactions are denominated in the US dollar. This is a position that has remained unchanged since the Bretton Woods agreement. Statistics indicate that the total amount of US bonds held by foreign countries has hit a record high of nearly $9.4 trillion by the end of 2025. Japan remains the largest creditor at $1.2 trillion end-2025, unchanged from 2020 levels, with many countries like the UK have increased their dollar holdings. De-dollarization efforts by the BRICS countries, fuelled by China and buzz-town in India, like the RBI's efforts to link digital currencies seems more like a media creation, and the efforts are yet to come to fruition. However, on the other hand, the policies adopted by President Trump are increasing the chances of diversification, fuelling the speculation about de-dollarization.