Why India Could Face Higher Oil Prices Amid Pakistan Tensions
India and Pakistan agreed to a ceasefire on Saturday, preventing escalating tensions from developing into a full-scale conflict–for now. The Indian military had reportedly deployed surface-to-air missiles near its western border as tensions flared following a deadly militant attack in Indian-administered Kashmir in April, which killed 26 people.
Although U.S. President Donald Trump later claimed credit for brokering the ceasefire via Truth Social, Indian officials clarified that the agreement was the result of direct talks between India and Pakistan’s military leadership, with Pakistan initiating the dialogue. Initially, the Trump administration appeared hesitant to intervene. President Trump commented that he “hoped it would end very quickly,” and there was little diplomatic movement until the threat of conflict between two nuclear-armed neighbors became too serious to ignore.
India described its missile strikes as targeted operations against terrorist infrastructure, not aimed at civilians or Pakistan’s military. However, the situation raised widespread concern over regional stability, especially with both nations possessing nuclear weapons. “At this point, the fear for everyone was a nuclear war between two arch rivals,” said a Pakistani security official.
Beyond the humanitarian stakes, there are major energy implications. India is the largest crude oil importer in the region, and any prolonged conflict could threaten its access to energy resources.
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“While the tensions have wide-ranging and serious humanitarian implications, it also brings to the forefront the importance of emergency preparedness in the energy sector,” noted a Rystad Energy market report.
Energy strategist Umud Shokri added, “While India primarily imports crude oil by sea from the Middle East, regional tensions can disrupt key maritime routes. Increased shipping risks and higher freight charges may lead to supply chain disturbances.”
Shokri warned that a sustained conflict could trigger a $10 per barrel increase in crude prices, which would widen India’s current account deficit by 0.5% of GDP.
India also faces ongoing uncertainty regarding trade relations with the U.S. In 2018, during Trump’s first term, the U.S. imposed tariffs of 25% on steel and 10% on aluminum from India. This led to a 46% drop in Indian steel exports to the U.S. over the following year. Earlier this year, Indian financial firm Motilal Oswal suggested that renewed tariff threats could push India to strengthen domestic industries and boost local production.
Oil remains a major vulnerability for India’s economy. The country imports most of its oil from Russia, Saudi Arabia, Iraq, the United Arab Emirates, and the United States. In fiscal year 2023–24, India spent approximately $132.4 billion on crude oil imports, a 16% year-over-year decline due to lower global prices and increased discounted imports from Russia.
Analysts expect India to surpass China as the top driver of global oil demand growth. “China’s role as a global oil demand growth engine is fading fast,” said Emma Richards, a senior analyst at Fitch Solutions, to The Times of India. She explained that China’s share of emerging market oil demand growth could drop from nearly 50% to 15%, while India’s could double to 24%. India’s population growth and a less aggressive green energy transition compared to China are expected to keep its oil consumption rising for years to come.
Meanwhile, India may have untapped oil resources of its own.
Four of India’s largest unexplored sedimentary basins—Mahanadi, Andaman, Bengal, and Kerala-Konkan—could hold up to 22 billion barrels of oil equivalent. This is a significant figure, though still smaller than proven reserves in places like the U.S. Permian Basin. India’s state-run Oil and Natural Gas Corporation (ONGC) has announced plans to invest over $10 billion in deepwater exploration. Petroleum Minister Hardeep Singh Puri recently stated that India’s oil and gas Exploration & Production (E&P) sector represents a $100 billion investment opportunity by 2030.
By Alex Kimani for Oilprice.com
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