India Copes with US-Iran Conflict by Shifting Oil Supplies
India's economy has managed to cope with the disruption caused by the US-Iran conflict and West Asian oil shock, but at a heavy cost to trade balances and commercial sectors. The country shifted its crude sourcing to Russia, absorbed demand destruction, and shielded domestic households from soaring LPG and natural gas costs.
Crude oil prices surged to above $110 per barrel between March and May, but saw a sharp slide as a ceasefire took hold. However, hostilities flared up again, and crude is back above $100 a barrel. India's crude basket comprises Brent crude oil and the Dubai-Oman benchmark in roughly a 70:30 split, but had to change this ratio to 78:22 due to supply disruptions.
The cost of the Indian crude basket reflects broader trends in the oil market. It was $69 per barrel in February, and is expected to cross $100 again if current hostilities continue. India's trade deficit rose to $86.6 billion in April-June 2026, driven by a parallel surge in gold prices.
India had to navigate disrupted trade routes and sourcing alternatives, with Russia's share of crude imports increasing significantly. The supply disruptions caused 'demand destruction', sharp declines in fuel demand due to consumers being unable to pay. In India, consumption fell sharply, with government data showing a 3.3% decline in petroleum product consumption.