The Price Of Dependence: What The Current Conflict In West Asia Means For India
For the first two weeks of this war, India watched from a careful distance. That distance has since closed - not because India chose to enter the conflict, but because the conflict has entered India's economy. The Strait of Hormuz is effectively shut. Brent crude is up almost 50 percent. The rupee is at record lows. Urea plants are running at half capacity. And foreign investors are exiting Indian markets at a pace that exceeds even their COVID-era panic. India's energy vulnerability was never a secret. What the war has done is remove the luxury of treating it as a long-term problem.
- Brent crude: +50 percent since 28 February 2026 - now at USD ~100/barrel[1]
- Rupee: Down three percent to INR 94.67 against USD[2]
- FPI outflows: USD 13 billion in March 2026 which has been the worst month since COVID's USD 16 billion in March 2020[3]
- LNG disruption: 47.4 MMSCMD affected; Qatar (40 percent+ of imports) near-inaccessible[4]
The financial damage is already visible and compounding. Every USD 10 rise in oil adds USD 12 billion to India's import bill and 0.5 percent to the current account deficit.[5] The RBI's forex reserves have fallen from USD 716 billion to USD 709 billion in two weeks,[6] and FPI ownership in NSE-listed companies has dropped to a 15.5-year low as investors flee to dollar safety.[7] The central bank has responded by injecting over INR 3500 billion (USD 37.28 billion) into the system since January - but monetary tools, deployed at scale, cannot fix a problem that is fundamentally physical.[8] You cannot print oil. You cannot repo-rate your way to LPG.
Before it reaches the farm, the shortages impact the kitchen. India has a minimal LPG buffer reserve. The infrastructure exists to keep supply moving under normal conditions, not to absorb a prolonged disruption. Approximately 90 percent of India's LPG transited the Strait of Hormuz.[9] The 105 million households connected under the Pradhan Mantri Ujjwala Yojana - the flagship scheme that brought cooking gas to India's poorest - are now first in line to feel the shortage.[10] So are the restaurants, hotels, and small commercial establishments that depend on LPG as their primary fuel. The government has so far held the line on retail prices, absorbing the cost difference through the oil marketing companies. That position is not sustainable. With four states and one union territory elections on the calendar, passing on the full burden to consumers is politically toxic. But suppressing it indefinitely is fiscally impossible. The consumer will pay - the only question is when, and how much at once.
Rating agencies have already started calculating the fiscal impact of disruptions to India’s fertilizer supply chain which is largely dependent, again, on the Middle East.[11] The industrial picture adds further pressure. Aviation fuel accounts for 35 to 40 percent of airline operating costs - fares will rise, and margins that were already thin will thin further. Chemicals, plastics, textiles, fertilisers, glass, and cement all carry supply chain dependencies on Gulf-sourced LNG and crude derivatives that are not always visible until they break. The Gulf also supplies over a third of global helium, a niche but critical input for semiconductor manufacturing. What looks, from a distance, like an oil price problem is, on closer examination, a multi-sector supply shock that will take months to fully work its way through the economy and that lands on an Indian economy which was struggling to up the growth numbers pre-war.
What must be done?
China holds strategic petroleum reserves covering 90 days of consumption. Japan holds over 100, supplemented by mandatory private sector reserves. Both countries built these buffers in the aftermath of their own energy shocks, understanding that import-dependent economies cannot absorb geopolitical disruptions on goodwill and improvisation alone.
The asks are specific and urgent. On LPG, a minimum 30-day buffer reserve must be created - its absence is a policy failure that will cost far more in subsidies and political capital than the reserve itself ever would. On fertiliser, emergency import arrangements with Russia, the United States, and Australia must be comprehensively executed. On the currency, the RBI's decision to let the rupee depreciate rather than burn reserves on defence is the right call but the reserves preserved must be directed toward essential imports: oil, fertiliser, medicine. And on subsidies, the instinct to suppress prices uniformly ahead of state elections must be resisted. A targeted approach that protects the bottom income deciles, while allowing costs to pass through to those who can absorb them, is both more equitable and fiscally more honest.
On 23 March 2026, the Prime Minister said that India is in this together. That is worth holding to account. Being in this together does not mean asking the public, yet again, to be resilient while the state improvises. It should translate into preparation before the crisis deepens, burden-sharing that is actually shared, and a quality of policy response that finally matches the scale of India's external exposure. The window to demonstrate that is open. It will not remain so for long.
This article was written by Avanti Bhati, Gopala Goyal and Nandini Maheshwari of Osborne Partners' Business Intelligence and Investigations team.
The Business Intelligence and Investigations team supports clients across the investment lifecycle, from pre-investment due diligence to post-investment investigations and public policy risk assessments, helping them identify and respond to reputational, regulatory and governance risks.
[1] www.investing.com/brent-oil-historical-data
[2] www.investing.com/currencies/usd-inr
[6] https://tradingeconomics.com/india/foreign-exchange-reserves
[7] www.telegraphindia.com/business
[8] www.multibagg.com ; www.deccanherald.com
[10] www.pib.gov.in/PressReleseDetail
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