India Faces Dual Energy and Aviation Crisis as Middle East Tensions Escalate

India is confronting a mounting dual crisis stemming from escalating Middle East tensions, with soaring oil prices threatening to inflate the country’s already substantial energy import bill. At the same time, airspace closures and flight disruptions severely impact airline operations and passenger travel.

India imports nearly 85% of its crude oil requirements — roughly 4.2 million barrels per day — making it highly sensitive to global price movements, said Pankaj Srivastava, senior vice president at energy research firm Rystad Energy.

“Even a few dollars’ increase in prices can materially affect [the country’s] energy economics,” he told CNBC. “Rising [oil] prices will weigh on the balance of payments and could put further pressure on the rupee.”

Brent crude prices surged 9.3% on Monday to reach $79.40 per barrel, a new 52-week high, driven by U.S. and Israeli strikes on Iran that began over the weekend. The strikes, which targeted nuclear and military facilities, resulted in the death of Iran’s Supreme Leader Ayatollah Ali Khamenei, triggering retaliatory attacks by Tehran on U.S. military bases across the Gulf region.

Strait of Hormuz Disruptions and Supply Shock Fears

Oil traffic through the Strait of Hormuz — the critical chokepoint linking major producers (Saudi Arabia, Iran, Iraq, UAE) to global markets and responsible for ~20% of the world’s seaborne oil — has effectively halted due to skyrocketing insurance rates amid Iran’s attacks on U.S. bases, experts said. Vessel tracking data indicates that around half of India’s crude imports currently transit the strait, according to Nomura’s Sunday report.

Analysts now forecast Nigerian Bonny Light crude — a sweet (low-sulfur) grade ideal for gasoline and jet fuel production — to surpass $80 per barrel, and possibly climb higher, as buyers seek alternatives less exposed to Hormuz risks.

Morgan Stanley warned Sunday that every sustained $10/bbl rise in oil prices could shave 20–30 basis points off Asia’s GDP growth, with India particularly vulnerable due to its wide oil and gas balance. The country’s current account deficit (1.2% of GDP) would widen by ~50 basis points for every $10/bbl increase, the analysts said.

The Middle East conflict has triggered widespread airspace closures, severely disrupting westbound flights from India that traditionally overfly Iran and the Arabian Peninsula, according to a CNBC report.

Sajay Lazar, CEO of Indian aviation consultancy Avialaz Consultants, told CNBC: “The Middle East corridor is India’s largest westbound corridor, and this [disruption] will impact Indigo and Air India heavily.”

With Pakistani airspace already closed to Indian carriers, many flights to Europe and the U.K. have been cancelled or rerouted, adding up to four hours to flight times and significantly increasing fuel and operational costs. IndiGo (InterGlobe Aviation) said Monday that “the temporary suspension of select international flights operating through parts of the Middle Eastern airspace has been extended.”

Shares opened nearly 5% lower.

Air India (Tata Group/Singapore Airlines) cancelled all flights to/from the UAE, Saudi Arabia, Israel, and Qatar on Monday, plus some European routes from New Delhi. The airline stated many other Europe/North America flights would operate “using alternative routings over available airspaces.”

Aviation expert Mark D. Martin of Martin Consulting estimated the weekly impact on Indian and international airlines flying to/from India at a conservative ?875 crore (~$96 million), with the airspace situation unlikely to improve for at least one week. If tensions escalate further, India may seek Chinese airspace access from the north — overflying the Commonwealth of Independent States into Europe — as a contingency, Martin said.

Russian Oil Dilemma Amid U.S. Scrutiny

India imported 1.16 million bpd of Russian oil until a week ago, down from a 2025 average of 1.71 million bpd, after replacing it with Middle East supplies now disrupted. Ellen Wald, president of Transversal Consulting, told CNBC’s “Inside India”: “India’s oil purchases will be under the microscope” if it resumes larger Russian volumes.

Under an interim trade deal last month, the U.S. removed a 25% punitive tariff on Indian exports (previously tied to Russian oil purchases) and reduced the baseline to 18%, contingent on India ending direct/indirect Russian oil imports. Washington has warned it will monitor compliance, and any resumption could trigger renewed punitive tariffs.

Despite the risk, Wald suggested: “I have a feeling no one’s going to really fault them [India] for doing what they need to do to get through the next month.”

Rystad’s Srivastava noted significant volumes of appropriate-grade Russian crude are already available on water, making resumption a likely scenario if Middle East supply remains constrained.

The combination of higher oil prices and aviation disruptions poses a multi-front challenge for India:

• Balance of payments pressure — Widening current account deficit and rupee weakness.
• Inflation risk — Pass-through from higher crude costs to fuel, transport, and consumer prices.
• Airline profitability — Increased fuel burn from longer routes, plus revenue loss from cancellations.
• Fiscal strain — Potential need for subsidies or relief measures amid budget pressures.

India’s 2026 budget assumes $64.85/bbl crude and 1.84 million bpd production — both now at risk of undershoot if prices stay elevated and output remains below target.

The coming weeks will test India’s energy security and aviation resilience. Sustained Middle East disruptions could force a difficult choice: resume discounted Russian imports (risking U.S. tariffs) or absorb higher costs from alternative sources. Aviation rerouting and cancellations are likely to persist until airspace reopens, with significant cost implications for carriers.

Currently, New Delhi faces a classic emerging-market dilemma that requires balancing energy affordability, fiscal stability, and geopolitical alignment in a volatile global environment.