Iran, Oil Trade and the New Geopolitical Realignment: How should India Navigate?
- Author
- Published on
Summary
The disruption’s in the Strait of Hormuz has spiked global oil prices. India continues to balance ties with the US/Israel and Tehran, diversify imports in the emerging multipolar realignment.
The International Energy Agency in its report stated that “the recent conflict has triggered the largest supply disruption in the history of global oil market” and “restoring transit through the Strait of Hormuz remains essential to stabilise global energy markets.” The Strait carries around 20 million barrels of crude oil per day and the supply chain disruption has tightened the oil markets which has pushed the oil prices above $100 per barrel. The economic impact of the current conflict is being felt across the world, comparable to the effects of the 1973 global oil crisis.
The current world order is undergoing a drastic change and Iran sits at the centre of it. The changing geopolitical alignments and the rising tensions in West Asia have demonstrated the strategic significance of Iran, showcasing that Tehran not only influences regional politics but also the global political order. Today, Iran is reshaping the global oil trade routes, economic partnerships and energy alliances. India’s economic and energy security are deeply connected to the stability of the West Asian region and hence, these developments become significantly important for India’s foreign policy choices.
Iran possesses some of the world’s largest crude oil reserves because of which, even after the Western sanctions, it remains a critical energy supplier for Asia. Tehran commands one of the most important trade routes, the Strait of Hormuz making it a key figure to any calculation concerning trade, energy and power in the region.
By choking the important Strait of Hormuz, Iran has hurt the major economic nations in Asia such as India, Japan, China, Korea and region at large. In the light of the continued instability in the West Asian region, countries are shifting their alliances. A new quadrilateral is taking shape involving Egypt, Pakistan, Saudi Arabia and Turkey to tackle the shared security concerns poised by the conflict involving US, Israel and Iran. The US-dominated Middle East order is shattering with the rise of a new non-western multipolar order involving countries like China and Russia, which are increasingly cooperating with Iran in the fields of trade, infrastructure and energy security.
Amidst this changing landscape, India finds itself in a delicate yet important position. New Delhi maintains strong ties with the US and Israel, but also realises the strategic importance of maintaining ties with Tehran. Iran’s strategic location and India’s stakes in the Chabahar Port also makes Tehran important for connectivity with Central Asia and trade routes. However, the six-month sanctions waiver by the US for the development of the port has ended and the project it at halt due to the ongoing crisis.
India is a major oil importer, fulfilling 85-90% of its crude oil requirements via imports and a large portion of its energy supplies travels through the Strait of Hormuz. India imports about 90% of its LPG through the Strait. India has always depended on the Gulf countries for its energy imports with reliance on Saudi, Kuwait and Iran during the early 2000s, to its dependance on Iraq in 2010s and even after diversifying the sources away from the Gulf after 2015, the imports of oil from the Gulf region still accounts for 40% of total oil import and 80% of total gas import. The 2026 reports suggested that nearly half of these imports were susceptible to the disruptions caused by the ongoing crisis.
Rising crude oil prices increase India’s import bill and weakens the rupee against the dollar. India’s rank in the global economy has slid from being 4th largest to 6th largest economy. This reinforces the fact that India’s economic health is directly connected to the stability in the Gulf and access to affordable energy sources. The foreign policy choices that India now makes will drastically impact its energy and economic stability. India recently received fresh shipments of Iranian crude, nearly after seven years of no oil trade, following changes in sanctions policy. This demonstrates that New Delhi has once again started exploring energy cooperation with Tehran. While there was a brief reprieve from the sanctions for India, however, the US quickly reimposed new sanctions. This underscores India’s continued vulnerability and the challenges of navigating US-Iran relations. Moody’s ratings suggest that India and other oil importing countries, such as China, Japan, and Korea, are now more likely to negotiate bilaterally with Iran, potentially through coordinated transit corridors. Additionally, India needs to explore new energy partners to secure its energy supplies.
Iran has become a central figure in the current geopolitical arena. Its influence over trade routes and its crude oil reserves will continue to influence the geopolitical realignments and the global energy security. How India navigates through this crisis is a predicament for the policy makers. India’s dilemma encapsulates the reality of changing world order that this crisis has triggered. It has revealed how fragile the energy supply chain market is and how a single chokepoint disruption can impact the trade flow and economic security of the world. It has also exposed the limits of the US influence in the multipolar world as countries are realigning with other partners keeping their national interest as priority.
Disclaimer: Views expressed are of the author(s) and do not necessarily reflect the views of The Statecraft Institute.