INDIA’S PREDICAMENT - IRAN WAR

 

Notes

1.    This is a research article based on data and information available in the public domain. It could be data-intensive. The period taken for the database is 2010 - 2025. PM Modi referred to the period 2014 onwards in his speech. Therefore, the period has been extended backwards to get the inputs rooted in history.

2.  Those of you who are averse to data can skip tables and go straight to inferences. Data inferences and interpretations are as objective as possible and only as it seems straight from the tables

3.   This is not to sensationalise but to sensitise readers to how a war fought miles away in a different country or continent can impact the world. 

Take-off Point 

We shall start this article by picking up from where we left off in the previous one.   

The summary of the speech given by the Prime Minister of India in the Lok Sabha is as follows: -

 

1. War in West Asia has created unprecedented economic, national security and humanitarian challenges. He warned the countrymen that the difficult Global conditions caused by this war are likely to persist for a long time.

 

2.   The areas of concern he flagged were the safety and security of Indian citizens in the Gulf region, securing energy for the country, power generation, and fertilisers.

 

3.         He called upon the nation to remain prepared and united. 

4.         He assured the country that his government is considering short-term, medium-term, and long-term measures to address the situation and spoke about the inter-ministerial body that would meet daily to manage challenges as they arise. 

In his speech, the PM spoke of two areas that could be interpreted as avenues for both short- and long-term challenges. One was energy security, and the other was agriculture. The one that could turn into a short-term challenge is the safety of our citizens in West Asia. While the Prime Minister did not reveal the details of the challenges the Government of India identified, he did list out various steps taken during the 11 years of his government that have equipped the country to face the prospective challenges. In a country that is forever in poll mode, listing out what has been done over the last decade could milk electoral dividends and also assuage fears. 

Why did the PM say West Asia and not Arabian countries or the Gulf? Are there any reasons? 

Understanding Names 

The terms, West Asia and the Middle East, are often used interchangeably, but they are not the same. Strictly by definition, West Asia refers to the westernmost sub-region of the Asian continent. The countries in West Asia can be subdivided into: - 

The Arabian Peninsula, or Gulf, as we normally call it, has the Red Sea to the West, the Gulf of Aden and the Arabian Sea to the south and the Gulf of Oman and the Persian Gulf to the East and Northeast. The countries with the largest peninsular land mass of the world are Saudi Arabia, Yemen, Oman, the United Arab Emirates, Qatar, Bahrain, and Kuwait.  

   

 

The Levant. It is the geographical region in the eastern Mediterranean consisting of Syria, Lebanon, Jordan, Israel and Palestine.  The term Levant in French means Rising. It is believed to be used from the perspective of Western European countries like Italy, France, and Britain since these countries lie to the east in the direction of the sunrise. In some texts, Cyprus, the southern parts of Turkey, and the northern part of Egypt are also added. (The Map makes it clear)

 

Mesopotamia or Iraq.

 

Iran.

 

Anatolia (most of Turkey)

 

The South Caucasus or the Transcaucasia, with the Greater Caucasus mountains to the north, Black Sea to the west, and the Caspian Sea to the East. Armenia, Azerbaijan and Georgia. 

 

 

The term Middle East is a Western perspective and refers to the area in a more geopolitical term from the Western perspective. The PM’s speech was about West Asia and not confined to the Gulf as we ordinarily refer to it.  

Understanding Bilateral Relationships  

Let us first see how India is tied to each country in West Asia. I am not privy to any classified details or government files. I will therefore bank on the data available in the public domain.  

Gulf / Arabian Peninsula 

1.         Saudi Arabia. It was one of the largest crude oil suppliers to India. On the defence and Security aspects, the two countries are said to have carried out Joint exercises and Counter-terrorism coordination. Saudi Aramco was said to be planning investments in Indian refineries. About 25 Lakh Indians are said to be in this country.

 

2.         United Arab Emirates. It is considered to be a stable supplier. Military to Military and Intelligence cooperation is said to be increasing between the two. UAE is also one of India’s largest investors in infrastructure, including Ports and Renewable energy. 35 Lakh Indians are said to live and work in the UAE.

 

3.         Qatar is the primary supplier of LNG to India, with a sizable population living there.

 

4.         Kuwait also exports crude to India and hosts a significant Indian workforce.

 

5.         Oman has maritime and Strategic relations with India.

 

6.         Bahrain is not a major crude supplier to India but provides Mineral fuels & oil, Iron & steel, Aluminium (the most important), fertilisers, chemicals, and copper.

 

7.         Yemen. Nothing economically significant. 

Levant Region 

1.    Israel. It is one of India’s top defence suppliers. 

2.    Palestine. It is a political relationship. 

3.    Jordan. India imports Inorganic chemicals (phosphoric acid), Salt, sulphur, stone, cement (mainly phosphates, etc.), and Fertilizers. A large part of fertiliser production and Pharmaceuticals in India depend on these imports. 

4.    Lebanon. We have trade, but mostly export-driven. 

5.    Syria. No significant trade.  

Iraq. It has been a major crude oil supplier to India.  

Iran. Besides providing access to Afghanistan and Central Asia and the Chabahar Port, it has been a crude oil supplier.  

Turkey and the Transcaucasia do not matter in the current discussion. 

From the above facts, it is clear that the challenges to India, besides strategic and diplomatic aspects, would be from the following: -

1.         Flow of crude.

 

2.         Flow of fertilisers and raw materials for it

 

3.         Foreign remittances and the safety of Indians in the region.  

Let us now quantify and compare. Since the PM spoke of a decade, let us go five more years back to understand how it shaped up. 

 

India Crude Oil Imports by Country (2010–2025) (Million barrels per day
Year	Russia	Iraq	Saudi Arabia	UAE	USA	Kuwait	Iran	Others	Total
2010	0.02	0.7	0.9	0.25	0	0.2	0.4	0.6	3.07
2011	0.02	0.75	0.95	0.26	0	0.22	0.42	0.65	3.27
2012	0.03	0.8	1	0.27	0	0.23	0.3	0.7	3.33
2013	0.03	0.85	1	0.28	0	0.25	0.25	0.75	3.41
2014	0.03	0.9	1.05	0.3	0	0.25	0.28	0.8	3.61
2015	0.04	1	1.05	0.32	0	0.27	0.3	0.85	3.83
2016	0.05	1.1	1	0.33	0.05	0.28	0.45	0.9	4.16
2017	0.05	1.15	0.95	0.35	0.1	0.3	0.5	0.95	4.35
2018	0.06	1.2	0.9	0.36	0.15	0.32	0.4	1	4.39
2019	0.07	1.1	0.85	0.35	0.2	0.3	0.1	1.05	4.02
2020	0.08	1	0.8	0.33	0.25	0.28	0	0.9	3.64
2021	0.1	1.05	0.85	0.35	0.3	0.3	0	1	3.95
2022	0.9	1	0.8	0.35	0.28	0.28	0	1.05	4.66
2023	1.6	0.95	0.75	0.36	0.25	0.27	0	1.1	5.28
2024	1.7	0.95	0.7	0.38	0.25	0.25	0	1.15	5.38
2025*	1.7	0.95	0.7	0.4	0.25	0.25	0	1.2	5.45

 *The figures are NOT final

The table above gives us the following inferences: -

1.         The daily crude oil requirement in 2025 had grown by about 77% from 2010 levels. This indicates economic growth. It also makes energy security a core strategic element.

 

2.         During the same period, Russia grew from being a minor supplier of crude to being the single biggest supplier. If you look at the table closely, you can see the huge jump, almost 15 times, during the period 2023- 2025. Western sanctions on Russia over the Ukraine War provided India with an opportunity to buy crude at discounted rates.

 

3.         Supply from Iran stopped in 2020 due to the enforcement of American sanctions. Insurance of cargo and transaction mediums could also have proved difficult.

 

4.         The entry of the USA in 2016 is equally important. It grew from 0 in 2010 to ~0.25 to 0.3 mbpd today, revealing India’s strategy on diversification of energy sources reaching the Atlantic basin and signalling new strategic alignment.  

The table on imports from individual countries can be summarised as follows:

Year	West Asia (%)	USA (%)	Russia (%)	Total (%)
2010	79.80	0.00	0.65	80.46
2011	79.51	0.00	0.61	80.12
2012	78.08	0.00	0.90	78.98
2013	77.13	0.00	0.88	78.01
2014	77.01	0.00	0.83	77.84
2015	76.76	0.00	1.04	77.81
2016	75.96	1.20	1.20	78.37
2017	74.71	2.30	1.15	78.16
2018	72.44	3.42	1.37	77.22
2019	67.16	4.98	1.74	73.88
2020	66.21	6.87	2.20	75.27
2021	64.56	7.59	2.53	74.68
2022	52.15	6.01	19.31	77.47
2023	44.13	4.73	30.30	79.17
2024	42.38	4.65	31.60	78.62
2025*	42.20	4.59	31.19	77.98

 Let us look at this chart a bit closer.  

The chart tells us a few strategically important facts: -

1.         Dominance of West Asia as a crude supplier to India eroded from 80% in 2010 to 42% in 2025, almost halving India’s energy dependence on that geographical location. It is not that imports from the region drastically reduced in absolute terms, but it showed that India diversified aggressively, helping it de-link and de-risk overdependence on West Asia. With geopolitical equations changing fast, it can be seen as a redistribution of risk.

 

2.         The rise of Russia as a supplier from a mere 0.65% in 2010 to 31.19 % in 2025 indicates Indias, nimble footed approach to oil sourcing. However, recent political developments could cause problems.

 

3.         Having found its way into the list of suppliers in 2016 with 1.20 % of Indian crude oil imports, the US is now at 4.59 %. This, in benign eyes, is strategic alignment providing India with access to diversified types of crude and shipping routes, through the Atlantic besides the Gulf.

 

4.         What cannot be missed is that the 20% import comes from others. This insignificant little thing could, in the future, hold the key to significance.  

Crude Inventory 

India’s daily requirement of crude is about ~5.6–5.7 mbpd, and it produces just ~1.0 mbpd. It has to import ~4.6–4.8 mbpd. In other words, India is import dependent by ~85–90%. This can only increase, and any holdback in crude availability is bound to adversely affect the economy. 

Based on the information available in the public domain, India’s Strategic Petroleum Reserve (SPR) is about 5.3 million tonnes of crude, an equivalent of ~ 39 million barrels.  This alone, at current consumption of~5.7 mbpd, can meet requirements for ~7 days. 

The working inventory held with oil companies, IOC, BPCL, HPCL, and other private refiners is said to be ~60–70 million barrels, or about ~10–12 days. In addition, India also has about ~30–40 million barrels, equivalent to ~5–7 days in tankers at sea in various stages of transit. India, therefore, has an inventory of ~20–25 days in total as reserves.

One can often hear people saying that India has ~70–74 days of reserves. Technically, it is correct because it includes Strategic reserves: ~9–10 days and Refinery + commercial stocks: ~64–65 days. (‘Days’ is an approximation and not exact) 

In comparison, the USA has ~90 days of SPR alone, and China has about ~60 to 90 days of total reserves. The immediate question that comes to mind is, “Why does India have such low reserves?” 

The cost of crude oil storage infrastructure is prohibitively high and comes with immense risks. India started building up only after 2000. The Kargil War and the global oil shocks necessitated the creation of a strategic petroleum reserve when Shri AB Vajpayee was the PM. The SPR project is said to have been given formal approval and funding in 2005–2006 when Dr Manmohan Singh was the PM. Construction of the Visakhapatnam Strategic Petroleum Reserve began in 2008 and was commissioned in June 2015. The Construction of the Mangalore Strategic Petroleum Reserve began in 2009 and was commissioned in October 2016, and the Padur Strategic Petroleum Reserve in 2010 and Dec 2018. All three strategic assets were dedicated to the country in February 2019 by Shri Narendra Modi. What is creditable is that the strategic oil buffer was conceived and constructed from scratch in one decade.

The prime minister also flagged agriculture as a major area of concern in relation to the uncertainty in West Asia. Let us look at the picture.

1.         Saudi Arabia is a major supplier of DAP (Di-Ammonium Phosphate) and also supplies Phosphates and NPK fertilisers.

 

2.         Oman is India’s biggest urea supplier and has a Joint venture, OMIFCO, A large ammonia–urea plant in Sur, Eastern Oman, that produces ~1.6 million tonnes of urea annually, most of which is exported to India. It was built as a strategic India–Oman partnership.

 

3.         Qatar supplies area, Ammonia and natural gas, a critical raw material for urea production.

 

4.         United Arab Emirates Supplies sulphur besides NPK fertilisers. Sulphur is a core industrial input for the production of sulphuric acid, DAP (Di-Ammonium Phosphate), NPK fertilisers and Single Super Phosphate (SSP). The rock phosphate India imports from Jordan, Saudi Arabia, etc., cannot be converted into usable fertiliser unless there is sulphuric acid.  Reduction in sulphur import immediately affects the production of DAP. This can be devastating for crop yields.

 

5.         Bahrain is also a reliable supplier of urea.

 

6.         Jordan is a Major supplier of Rock phosphate and Phosphoric acid, a key Raw material for DAP production

 

7.         Israel supplies Potash (MOP) 

In effect, around 75% of India’s urea imports come from GCC countries and over 40% of the total fertiliser needs are linked to West Asia. Moreover, the supply chain passes through the Strait of Hormuz. When the PM spoke about how well stocked our granaries are, he could have been referring to the mitigating factors in case of a disruption in the supply chain. 

Let us list out various likely challenges and how each would impact India. 

Disruption of oil supply due to closure of or restriction in the Strait of Hormuz. Military action could also result in the degradation or destruction of the oil-producing capabilities of the existing sources. Transportation in a conflict zone is risky. This will creep in as higher insurance costs and add to the landed cost of crude.  In addition, this could also impact the Dollar Rupee exchange rate, further straining the economy. Let us put some figures to it. We'll keep it simple. We will factor in elements one by one so that the calculations don't overwhelm us and keep us away from understanding the big picture. 

Dynamics of Pricing 

Based on daily spot data, on 28 February, before the war began, Brent crude was trading at $71 to $72 per barrel and on 31st March, it was trading between $114 and $115, depending on the feed. The prices will skyrocket due to disruptions and reduced availability. Iran has warned that war will raise the price to $200 a barrel. The price of crude increased from $72 to $115, an increase of $43/barrel. India imports ~1.85 billion barrels/year. A $1 increase per barrel will cost India ~$1.8 to 1.9 billion extra. An increase of $43 per barrel will inflate the Annual import bill by an extra $79–80 billion. (1.85 billion barrels × $43).  This is just the cost of crude at collection. 

The cost of shipping has also been caught in the turbulence. Insurance of oil tankers is done in two parts. The hull or the ship and the cargo (oil) are insured separately.  Both components have exploded since the Iran war started.  Before the war started, the war risk insurance was about 0.25% of the value. Today, it is running at 1 to 3% of the value for each trip. The insurance cost of a Very Large Crude Carrier (VLCC) could run into Millions for each trip. This eventually gets added to the cost of the oil landed. What used to be $2–3/barrel is said to be around $6–10/barrel, an increase of $4 to $7 per barrel. The additional cost of insurance will hover between $7.4 billion (1.85B × $4 = $7.4 billion) and $13 billion (1.85B × $7 = $13 billion). Thus, at landing, the total additional annual outflow will be an extra $79–80 billion plus $7.4 - $13 billion or $86 to $93 billion. This will change for each dollar increase in the price of crude. This is without considering the depreciation of the rupee against the dollar. 

So what? It hits straight at the country’s Current Account Deficit (CAD).

Story of CAD 

CAD is a measure of foreign currency earned by a country. When a country spends more foreign money than it earns, the net becomes a deficit. If India earns $10B and spends $15B, the CAD is $5B. 

India’s Current Account Deficit, according to figures available in the public domain for the period Oct–Dec 2025, is $13.2 billion or 1.3% of GDP. For the period Apr–Dec 2025, CAD was about $30.1 billion or about ~1.0% of GDP.  The rough annualised CAD figures should be $40–50 billion, say $45 billion. 

We can safely say India was maintaining a CAD ≈ 1.0% – 1.3% of GDP before the war commenced. 

Now let us factor in the impact of crude rising from $72 to $115 (+$43) and the resultant $79–80 billion additional amount, and the $7–13 billion from the $4–7/barrel insurance/freight escalation.  The additional outflow is $87 – $93 billion, say $ 90 billion.  The revised CAD would turn out to be ($45B + $90B) ≈ $135 billion. With India's GDP at ~$3.7 trillion, the CAD jumps from ~1.3% to ~3.5% of GDP. Anything above 2% is considered serious. 

Now, let us build in the Rupee depreciation factor, the third variable. But first, let us see how the rupee has historically traded against the dollar. 

Fiscal Year	₹/$ (Start)	₹/$ (End)	% Change
2010–11	~45.5	~44.7	1.80%
2011–12	~44.7	~51.2	-14.50%
2012–13	~51.2	~54.4	-6.30%
2013–14	~54.4	~60.1	-10.50%
2014–15	~60.1	~62.6	-4.20%
2015–16	~62.6	~66.3	-5.90%
2016–17	~66.3	~64.9	2.10%
2017–18	~64.9	~65.0	~0%
2018–19	~65.0	~69.2	-6.50%
2019–20	~69.2	~75.4	-8.90%
2020–21	~75.4	~73.5	2.50%
2021–22	~73.5	~75.8	-3.10%
2022–23	~75.8	~82.2	-8.40%
2023–24	~82.2	~83.4	-1.50%
2024–25	~83.4	~83.6	~0%
2025–26	~83.6	~92–95	-10% to -11%

On 28 Feb 2026, the dollar was worth ₹91.08, and on 31 March 2026 (current market), intraday it touched: ₹95.2/$ and closed around: ₹94.8/$. Let us consider it as ₹95/$ Rupee. The single-month depreciation is ~4.4%. 

Even if the dollar price for crude stayed the same and the rupee fell, it added cost equivalent to the fall. If the rupee fell by 4.4% import bill increased by 4.4%. If the base oil import bill (before the rupee’s fall) was ~$120 billion, the currency impact alone would add ~$5–6 billion as a burden. Imagine the outgo when the depreciation is 10% (₹85.44 in Mar 2025 to ₹95 in Mar 2026). 

We will stick to the changes related to the war only because we are looking at India’s predicaments due to the war. 

Now, if we add the three components (crude - $80B, insurance - $7–13B and currency depreciation $5–6B), we will have to shell out $92 – $99 billion, say $95 billion more.  

How about CAD?

The base CAD, at the beginning of the war, at ~1.2% GDP, was ~$45B. If we add ~$95B to it, the total would fall between $130–140B or ~3.5% – 3.9% of GDP. But there would also be offsets. This is considered to be between $30 to 50B annually.  Reducing the offsets, the final CAD should be between $90B – $115B or between ~2.5% – 3.2% of GDP. Effectively, when the oil price rises, insurance costs rise, and the rupee falls, CAD increases. Unfortunately, this is a negatively reinforcing cycle. CAD, moving towards three is not a good sign. 

India has been there before, too. In the 2011-12 fiscal year, the new government had to handle a 14.5% fall in rupee value, in 12-13 a fall of 6.3% and in 13-14 another fall of 10.5%. In March 2014, the value averaged between ₹60 and ₹62 per USD. The opposition made it a serious issue during the elections. This rupee ‘crash’ happened due to the US Fed changes, making US assets attractive. India’s political climate in 2013 also played a significant role in weakening the investor’s confidence, triggering large capital outflows. Between June and August 2013, ~$12–13 billion were pulled out of Indian debt markets as global investors started exiting emerging markets. Oil too dealt a heavy hand. The price of crude touched $108 a barrel and increased the CAD to about ~4.8% of GDP. In March 2013, the price of Petrol was about ₹68, and Disel was about ₹49 a litre. By March 2014, Petrol went up to ₹68, and Diesel rose to less than ₹56 a litre. There was an uproar across the country.

In Mar 2015, the crude prices plummeted to $55-56 a barrel. However, consumers continued to pay elevated fuel prices. This helped the government shore up capital. To put things in perspective, we can look at how fuel was taxed during the period. The chart below is from data available in the public domain. In addition, each state levied VAT on this and passed on the burden to the consumer.

Excise duty (Central Government)
Year	Petrol (₹/L)	Diesel (₹/L)
2010	~14.35	~4.60
2011	~14.35	~4.60
2012	~14.78	~4.91
2013	~9–10	~3–4
2014	9.48	3.56
2015	~17–21	~11–13
2016	~21–23	~17–19
2017	~21.5	~17.3
2018–19	~19–21	~15–17
2020 (peak)	32.98	31.83
2021	~27–33	~21–31
2022	~19.9	~15.8
2023–24	~19–20	~15–16
2025	~34.9	~33.8*

Is there a cause for worry for India with the rupee depreciating like this? That depends to a large extent on India’s forex reserves.  Although India is now looking at the lowest value ever in the history of the rupee, forex is at a comfortable level. The exact figures may not be known, but the details available in the public domain are summarised below.

 

India Forex Reserves (USD Billion)
Year	FCA	Gold	SDR	RTP	Total
2010	~260	~20	~5	~2	~287
2011	~275	~23	~5	~2	~305
2012	~271	~30	~4	~2	~300
2013	~276	~22	~4	~2	~298
2014	~303	~22	~4	~2	~325
2015	317	19	4	1.3	~342–350
2016	~336	~20	~4	~2	~360
2017	~389	~23	~4	~2	~412
2018	~374	~25	~4	~2	~399
2019	~432	~31	~4	~2	~463
2020	~549	~41	~5	~3	~590
2021	~594	~44	~19*	~5	~638
2022	~521	~46	~18	~5	~567
2023	~560	~55	~18	~5	~638
2024	~580	~65	~18	~5	~668
2025	~560	~100+	~18	~5	~690–700
2026	562.9	123.1	18.7	4.7	709.4

There is NO reason to panic yet. India never had it so good at the Forex reserves. With a kitty hold of ~$709–710 billion, which includes Foreign Currency Assets (FCA) ~$555.6B, Gold ~$130.7, SDR (IMF) ~$18.7, Reserve Tranche (IMF) ~$4.8, we have the best forex holdings in history. 

What are these terms? How does it help the economy?

Can’t $709B see us through the problem?

How many days' imports can the current forex manage?

Why is it not reducing CAD?

What if crude prices increase further?

Why did PM Modi speak about the Indian citizens in the region? Is it only about their well-being, or is there anything more to it?

How will the disruptions in fertiliser imports affect India?

This is getting data and terminology-intensive. We will simplify and see how it impacts the common man in the next article.