This geopolitical pressure is now echoing in Asia’s major importing countries. India’s MCX crude futures rose to around Rs 7,800 per barrel, marking their highest level since October 2023 and extending a strong bullish streak. Benchmark crude oil prices for other key Asian buyers also strengthened, with Indian crude reaching around $88 a barrel, indicating broader regional cost pressures caused by tightening supply routes. In a fragile environment, crude oil markets have become more sensitive to geopolitical headlines, as traders, refiners, and governments reassess supply security amid fears of structural shortages.
Refinery Vulnerabilities and Supply Side Disruptions
Military violence in West Asia has already resulted in attacks on critical oil facilities and tankers. Iran’s retaliatory strikes and previous drone strikes have disrupted operations at many locations and raised fears of further attacks on major refineries. Any major damage to these assets could lead to an immediate shutdown of production, sharply reducing short-term supply, and accelerating price increases as markets move to price the missing barrel.
These risks are particularly acute because refinery and infrastructure assets are difficult to protect from targeted attacks. Even limited interventions can cause a disproportionately large market reaction, given the delicate balance between global supply and demand.
Strait of Hormuz: A Strait Under Threat
The Strait of Hormuz remains the world’s most important oil hub, producing nearly one-fifth of the world’s crude oil. More than 200 ships have been forced to anchor outside the strait after recent blockades and tanker delays have already halted the flow after Tehran’s threats. Any prolonged disruption would severely limit supply, and push crude oil significantly higher.
Speculative purchases and war premiums
As risks deepen, futures markets have built up a significant “war premium,” with Brent’s first-month contracts trading higher as traders price in worsening volatility. Speculative flows accelerate when uncertainty rises, increasing volatility and accelerating price volatility.
Concerns about whether other suppliers can avoid disruptions
Although alternative suppliers such as the United States, Russia and West Africa could help diversify the flow, there is concern that global producers may not fully compensate for the large loss of Gulf supplies. Even targeting OPEC+’s modest increase in output has not eased concerns, as physical disruptions to Hormuz-linked exports will outweigh incremental supply adjustments.
Inflation risks and long-term weakness
The bitter war has raised fears that prolonged instability could fuel global inflation. Shipping delays, tanker blockades, and tight maritime security measures have already caused supply delays, making near-term crude availability difficult. This increases inflationary pressures at a time when most economies are still experiencing high inflation and slow to moderate growth. Long-term supply fragility also emerges as a central concern. Countries that rely heavily on Gulf energy – particularly in Asia – face potential disruptions to growth, macroeconomic stability and financial conditions if disruptions persist.
Impact of key importing countries: India, China, Japan, and South Korea
Both India and China, heavily dependent on Gulf oil, face significant losses. For India, disruptions in Hormuz threaten 40-50% of crude oil flows, raise import costs, widen the current account deficit, and put pressure on the rupee. Inflation risks intensify as higher oil prices weigh on fuel, logistics and industrial costs.
For China, prolonged supply uncertainty risks weakening economic momentum, increasing financial instability, and fueling energy-driven inflation. Meanwhile, Japan and South Korea – both dependent on oil supplies via the Hormuz – are grappling with rising procurement costs and global market volatility.
The crisis has also reached Europe, where an attack on Qatar Energy’s LNG facility has contributed to a sharp rise in natural gas prices.
However, Asian importers are developing strategic reserves, diversifying supplies towards Russia, the United States, West Africa and Latin America, extending long-term contracts, and securing alternative shipping routes to cope with the situation.
Outlook: Short-term shock, medium-term uncertainty
While the current rise reflects geopolitical shocks, crude oil prices may stabilize once tensions subside and shipping flows resume. History shows that even short-term disruptions related to Hormuz can cause instability, but diversified supply chains and strategic reserves help mitigate long-term damage in key Asian importers.
According to him, the ongoing increase in oil prices caused by the war poses serious threats to global growth. Higher energy costs threaten to erode corporate margins, reduce consumption, widen current account deficits, and depress currencies in energy-dependent economies. If the disruptions continue, borrowing costs will rise, increasing financial stress.
In the near-term, markets will remain highly reactive to geopolitical developments, with a war-torn strategy shaping crude oil’s direction. For the long term, this episode highlights the urgent need for diverse energy pathways, strategic storage upgrades, and resilient supply chains to meet an increasingly uncertain energy world.
(Disclaimer: Suggestions, recommendations, opinions, and opinions given by experts are their own. They do not represent the views of The Economic Times.)
