Red Sea route crisis: India faces rising oil import costs, supply risks

India's oil import bill rockets amid global turmoil

India is staring at a sharp rise in its energy costs as disruptions along the Red Sea route and escalating geopolitical tensions in the Middle East rattle global oil markets. Preliminary data shows the country's crude imports surged 60% in the April-June quarter of 2026, while net oil and gas imports jumped 45% during the same period.

The spike comes as shipping through the Red Sea—a critical chokepoint for global oil trade—faces repeated disruptions. Analysts warn that this could trigger another oil shock for India, which relies on imports for over 85% of its crude needs.

Red Sea route disruptions hit Saudi and Russian supplies

The Red Sea corridor is vital for oil shipments from Saudi Arabia, Iraq, and other Gulf producers. But recent attacks on commercial vessels have forced many tankers to take longer, costlier routes around Africa's Cape of Good Hope. This has delayed deliveries and pushed up freight rates.

Russia, which emerged as India's top oil supplier in 2024, is also affected. Moscow's crude, often shipped via the Red Sea to Indian ports, now faces similar delays. The disruption adds to supply chain pressures that have already driven up global crude prices.

India's refiners are scrambling to secure alternate cargoes, but spot market premiums have widened. The situation is expected to keep import costs elevated in the coming months.

Hormuz crisis deepens energy market volatility

The crisis extends beyond the Red Sea. Tensions between the US and Iran have raised fears of a blockade at the Strait of Hormuz, another crucial passage for Gulf oil. Although no formal blockade has been announced, insurance premiums for tankers transiting the strait have soared, and some shippers are avoiding the route altogether.

For India, which sources nearly a quarter of its crude from the Middle East, any prolonged disruption at Hormuz would be severe. The government has started reviewing its strategic petroleum reserves, but analysts say these can cover only a few weeks of consumption.

The combined effect of the Red Sea and Hormuz crises has created a perfect storm for energy markets. Brent crude has hovered above $90 a barrel, and Indian diesel and petrol prices have edged up, though state-run fuel retailers have so far absorbed part of the increase.

How India is weathering the energy shock

New Delhi has attempted to diversify its oil sources, increasing imports from the US, Brazil, and African nations. But these cannot fully replace the volumes from Russia and the Gulf. The government has also accelerated talks with Central Asian countries for long-term supply deals, though infrastructure constraints remain a hurdle.

Domestically, the finance ministry is monitoring the impact on the current account deficit, which widened to 2.1% of GDP in the last quarter. A sustained rise in oil prices could push it higher, weakening the rupee and stoking inflation.

Industry bodies have urged the government to consider a temporary cut in excise duties on fuel to ease the burden on consumers. But with fiscal deficit targets already under pressure, a decision remains pending.

What to watch: The next few weeks will be critical. If Red Sea transit remains disrupted and the Hormuz situation escalates, India's import bill could rise further, forcing the government to choose between fiscal discipline and consumer relief. Global diplomatic efforts to de-escalate the Middle East situation will be closely tracked by Indian policymakers.