Crude oil volatility: Indian refiners brace for 2026

West Asia calm breaks again

The fragile calm in West Asia has been jolted by fresh US-Iran strikes, reintroducing uncertainty into global energy markets after a brief easing in crude prices last week. The renewed conflict risk matters for India because it is the world’s third-largest crude importer and relies on imports for about 90% of its oil. The most immediate concern is whether shipping lanes remain open and whether supply risk premiums return to prices. Indian refiners have responded with caution rather than aggressive buying, even as tanker movements show early signs of recovery. The market is also weighing the durability of any ceasefire and the credibility of peace talks. With uncertainty high, analysts cited in the material expect renewed volatility and possible price rises.

Strait of Hormuz traffic resumes, but risks remain

A refinery executive, who declined to be identified, said ships had “just started to transit the Strait of Hormuz”, signalling that tanker traffic is beginning to recover. But the same executive warned that another flare-up would be concerning, highlighting how quickly conditions can change. The Strait of Hormuz is critical for regional exports and for India’s energy security. Citi flagged that a potential closure of the Strait of Hormuz is a key risk, noting it supplies about half of India’s crude imports. The brokerage also highlighted risks tied to any shutdown of Qatar’s LNG output, which it said supplies about half of India’s LNG imports. With such exposure, even a short disruption can lift freight and insurance costs and complicate cargo scheduling.

A narrow US waiver on Iranian oil changes the conversation

The US has temporarily waived sanctions on Iran until 21 August, according to the refinery executive cited in the material. Separately, the waiver has been described as limited to 30 days and applicable only to oil already in transit, not new exports. The constraints mean refiners are not treating the move as a full reopening of Iranian barrels. Payment mechanisms are still unclear, and companies are waiting for signals from New Delhi and clarity from Washington on how payments can be made without violating financial restrictions. As a result, refiners are taking a wait-and-watch approach rather than rushing into immediate procurement. The practical challenge is that even if oil can land, settlement and compliance risks can derail deals.

How much oil could enter the market, and for how long

In a Fox interview referenced in the material, US Treasury Secretary Scott Bessent said the administration was considering relaxing restrictions on Iranian oil already en route. The same material estimates oil already at sea at around 140 million barrels, and suggests allowing these shipments to reach destinations could ease supply constraints and lower prices temporarily for about 10 to 14 days. The method for selling oil at sea was described as unclear. Bessent also indicated Asian consumers, including India, Japan and Malaysia, could potentially benefit. Even so, the benefit is framed as time-bound, with the broader market still driven by conflict risk, shipping disruptions, and the durability of any de-escalation.

Indian refiners’ operating pressures: prices, rupee, logistics

India’s efforts to shield consumers from a historic oil shock are feeding back into the refining sector through tighter margins and stretched balance sheets, according to the material. Since US and Israeli strikes on Iran began at the end of February, refiners have faced sharp rises in crude prices, freight and insurance, compounded by a weaker rupee. Industry executives said refiners have been unable to pass rising costs on to retail consumers of petrol and diesel. Refiners have also had to scramble for alternatives to Middle East cargoes. Even if physical availability is maintained through alternative sourcing, analysts warned that the cost structure could deteriorate sharply due to longer routes and higher associated costs.

Market moves: crude near $120 and refinery stocks slide

Crude prices were reported to have topped $119 a barrel on Thursday as attacks on key Gulf energy assets raised fears that disruptions could outlast the escalating conflict. Elsewhere in the material, Brent was described as moving toward $120 per barrel, near a four-year high, pressuring near-term earnings expectations for refiners. Refinery stocks reacted sharply: Indian Oil was down 6.6%, Hindustan Petroleum fell 7.5%, and Bharat Petroleum declined 7.1% in the cited session. Citi said refiners’ earnings would hinge on how long the geopolitical shock lasts. The brokerage added that disruptions beyond the one month currently priced in could sharply tighten LNG markets, with low European storage for October 2026 increasing the risk of “non-linear” price spikes.

Alternative sourcing and throughput: no cuts yet

Industry officials and analysts said on March 5 that Indian refiners were maintaining normal throughput levels but had begun negotiating for incremental crude cargoes from the US, Russia, and West Africa. A refining source said there was “no need to cut throughput yet,” indicating operations remain steady for now. The intent is to keep supplies plentiful if the Middle East conflict drags on. Jefferies said the magnitude and duration of a crude spike after any Hormuz closure, and the time taken to return to normal, would be critical for India. The same note said that if crude stays above $10 per barrel, retail price adjustments and/or a cut in fuel excise duties may happen.

Government contingency planning: exports, Russia, LPG

The government is evaluating emergency steps if Hormuz shipping remains affected for an extended period. Options under discussion include curbing exports of petrol and diesel, stepping up crude purchases from Russia, and demand-side measures such as rationing LPG supplies, according to people aware of the discussions. The material also notes refiners have begun scouting alternative crude sources to offset conflict-related disruptions. For India, higher global oil and gas prices translate into a larger import bill and additional inflationary pressure. A separate point in the material outlines the current export intensity: India sends abroad roughly one-third of petrol production, about a quarter of diesel output, and nearly half of aviation turbine fuel output. These proportions help explain why export curbs can quickly redirect supply toward domestic needs.

What analysts are watching next

Analysts and ratings experts cited in the material emphasised volatility risk from escalating conflict and reported attacks on oil producers. ICRA’s Prashant Vasisht said such developments are likely to exacerbate volatility in crude prices. Meanwhile, the Iranian announcement about closing the Strait of Hormuz, cited in the material, has prompted refiners to scout alternatives in Africa and South America, while the petroleum ministry consults with refiners and takes stock of oil inventories. Even if alternative sourcing reduces shortage risk, higher prices and higher logistics costs can compress margins. The next signals markets will track include how long the waiver remains limited, whether payment pathways are clarified, and whether regional shipping and LNG operations stabilise.

Key facts snapshot

Conclusion

The renewed US-Iran conflict risk has pushed Indian refiners into a defensive posture, even as tanker traffic starts to recover through the Strait of Hormuz. A narrow US waiver on Iranian oil has created limited optionality, but unclear payment mechanisms and sanctions risk mean refiners are unlikely to rush into fresh procurement. In parallel, companies are pursuing incremental barrels from the US, Russia and West Africa while policymakers review emergency steps to protect domestic fuel availability if shipping disruptions persist. The next inflection points will be further clarity from Washington on the waiver and payments, and whether West Asia sees another escalation or a more durable easing of tensions.