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1 Jul 2026INTERNATIONAL RELATIONS3 questions

Explained: How Iran War Drove Up Costs And Shook Indian Markets

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Article summary

The Iran war of 2026 has emerged as a defining geopolitical shock, triggering a sharp spike in global crude oil prices and sending tremors through Indian financial markets, supply chains, and the fiscal balance sheet. India imports approximately 87% of its crude oil requirements, making it acutely sensitive to any disruption in West Asian supply corridors, particularly the Strait of Hormuz through which nearly 20% of global oil trade passes. The conflict has pushed Brent crude prices to multi-year highs, widening India's current account deficit, depreciating the rupee, and stoking inflationary pressures across fuel, fertiliser, and logistics sectors. Historically, every $10 per barrel rise in crude prices widens India's current account deficit by approximately 0.4–0.5% of GDP and adds roughly ₹1 lakh crore to the annual fuel subsidy burden. For UPSC aspirants, this event is a live case study in the intersection of energy security, external sector vulnerability, monetary policy transmission, and India's strategic autonomy in foreign policy.

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recallTests whether you read the article and retained key facts.
1Q
applicationTests whether you can apply the concept to a new scenario.
1Q
analysisTests whether you can reason across multiple related facts.
1Q

Sample questions — answers revealed after test

INTERNATIONAL RELATIONSRecallEasy

Q1. India's Strategic Petroleum Reserves (SPR), managed by the Indian Strategic Petroleum Reserves Limited (ISPRL), are stored in underground caverns. Which of the following correctly identifies all three locations of these caverns?

AVisakhapatnam, Mangaluru, and Padur
BVisakhapatnam, Chennai, and Padur
CMangaluru, Kochi, and Paradip
DVisakhapatnam, Mangaluru, and Digboi
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INTERNATIONAL RELATIONSApplicationMedium

Q2. Suppose an armed conflict in West Asia causes crude oil prices to rise by $30 per barrel and simultaneously triggers a 5% depreciation of the Indian rupee against the US dollar. Which of the following assessments of the combined macroeconomic impact on India is most accurate?

AIndia's current account deficit would widen by approximately 1.2–1.5% of GDP from the price rise alone, and rupee depreciation would further raise the rupee cost of imports, compounding both the current account and fiscal deficits simultaneously.
BIndia's current account deficit would widen by approximately 1.2–1.5% of GDP from the price rise alone, but rupee depreciation would partially offset this by making Indian exports cheaper, leaving the net macroeconomic impact neutral.
CIndia's current account deficit would widen by approximately 0.4–0.5% of GDP from the price rise alone, but rupee depreciation would partially offset this by making Indian exports cheaper, leaving the net macroeconomic impact neutral.
DIndia's current account deficit would widen by approximately 1.2–1.5% of GDP from the price rise alone, and the RBI would be compelled to raise interest rates immediately to defend the rupee, which would simultaneously reduce inflation and restore export competitiveness.
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INTERNATIONAL RELATIONSAnalysisHard

Q3. Consider the following statements regarding India's energy security vulnerabilities exposed by a conflict involving Iran: 1. The Strait of Hormuz, a 33-km-wide passage between Iran and Oman, carries approximately 20% of global oil trade and 30% of global LNG trade, making its disruption uniquely catastrophic for Asian energy consumers relative to Atlantic-basin economies. 2. India's Strategic Petroleum Reserves currently meet the IEA's recommended 90-day net import cover, but are concentrated in only three locations, creating logistical vulnerability. 3. India's dependence on the Chabahar Port project as a gateway to Afghanistan and Central Asia means that an Iran conflict simultaneously disrupts India's energy supply and its Eurasian connectivity strategy, unlike a conflict in, say, the Persian Gulf's Arab states alone. 4. A $10 per barrel increase in crude oil prices adds approximately ₹1 lakh crore to India's annual petroleum subsidy bill and widens the current account deficit by 0.4–0.5% of GDP. Which of the statements given above are correct?

A1, 3 and 4 only
B1, 2 and 4 only
C2, 3 and 4 only
D1, 2, 3 and 4
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