The dramatic escalation in the Middle East has left global markets on the edge after the US President Donald Trump ordered airstrikes on three key Iranian nuclear facilities—Fordow, Natanz, and Isfahan—using 30,000-pound “bunker buster” bombs. In doing so, the US has decisively entered in what was largely a Iran-Israel conflict.

The prospect of Iran retaliating by closing the Strait of Hormuz —through which nearly 25% of the world’s daily oil supply flows—looms large, and could trigger a supply shock of historic proportions. For India, a country that imports around 90% of its crude oil and depends heavily on Middle Eastern routes, the fallout could be severe.

According to the International Energy Agency, the Strait channels around 20 million barrels of oil per day, or 25% of global oil exports, including over 40% of India’s crude. India’s vulnerability is heightened by the fact that its oil dependency hit a record 90% in April 2025, according to the Petroleum Planning & Analysis Cell. India’s total strategic oil reserves cover about 74 days, with IOCL and state-run refiners holding the bulk.

Oil markets have already begun reacting. Brent crude futures were up 11% in the week with prices hovering around $74.10 a barrel, and it could now possibly hit $80 levels with analysts warning of a potential surge toward $100 if hostilities escalate. According to rating agency Icra, every $10/barrel rise in crude oil could widen India’s current account deficit by 0.3% of GDP and inflate the oil import bill by ₹1.1 lakh crore ($13–14 billion) annually.

It could put India’s estimated FY26 GDP growth below 6.2%, if oil prices remain elevated. Retail inflation, which had been easing, could spike again due to imported fuel and transport costs. In turn, the RBI may be forced to stay hawkish, delaying any interest rate cuts, thereby further constraining consumption and private investment.

Indian equity markets are bracing for volatility. The Nifty and Sensex are expected to open lower on Monday, with energy-intensive sectors such as energy, aviation, and ancillary sectors likely to bear the brunt. The rupee, already under pressure, could slip further against the dollar if oil prices spike and FPI outflows accelerate, which is already nearing the Rs 1 lakh crore mark as of June 20th. A strong dollar, rising crude, and geopolitical risk, the currency could touch ₹85/USD in a short span if capital flows intensify, according to market observers.

Whether Iran retaliates forcefully or diplomatically will determine the duration and depth of this crisis, but the risk of a prolonged conflagration is now dangerously real.