More than three weeks after US and Israeli strikes on Iran triggered a chain of retaliation across West Asia, the conflict has spread far beyond its starting point, hitting energy infrastructure, disrupting shipping routes and pulling multiple countries into what is now a region-wide war.
What began as a geopolitical escalation is now turning into an economic one, and oil is at the heart of it.
Crude oil is trading above $110 a barrel. But the bigger concern is not just the price. It is the disruption to supply. The Strait of Hormuz, which carries nearly a fifth of global oil, is under strain.
Tanker traffic has slowed as ships avoid the route, insurance costs have surged, and repeated attacks and threats have turned one of the world’s most critical energy corridors into a high-risk passage.
At the same time, strikes on energy infrastructure across the Gulf are beginning to affect refining capacity and gas supply.
That is what is now feeding into a more urgent question. How far is the world from a recession?
GLOBAL OIL CRISIS
The war has moved directly into the global energy system.
Strikes on Iran’s South Pars gas field disrupted a significant portion of its output, while retaliation has extended to oil and gas facilities across Saudi Arabia, Qatar and the UAE. What began as a geopolitical escalation is now affecting production, refining and transport at the same time.
“The latest escalation in West Asia involves direct attacks on both oil supply and critical energy infrastructure, including production sites and transit chokepoints such as the Strait of Hormuz,” says Kaushal Sampat, President at Vayana, a supply chain finance platform.
Market estimates suggest that 8 to 10 million barrels per day of supply could be affected if disruptions persist. The Strait of Hormuz alone carries nearly 20 million barrels per day, which means even partial disruption has global consequences.
Sampat describes the situation as a system-level shock. “In our view, this is not purely short-term, but a combination of immediate disruption and emerging structural risk,” he tells IndiaToday.in.
“This is not just a price shock; this is also an availability issue,” says Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, a brokerage and wealth management firm.
GLOBAL MARKETS ALREADY FLASHING RED
The reaction has already begun in global markets.
Equity markets have turned volatile as oil prices climbed, while currencies and bond yields are adjusting to renewed inflation risks. Investors are reassessing growth expectations as higher energy costs begin to threaten corporate margins and consumer demand.
Oil markets are showing the most visible signs of stress. Prices have reacted sharply to every development, moving not just on headlines but on the growing risk of sustained disruption to supply.
The pressure is also visible in domestic markets.
“The recent weakness in Indian equities can be attributed to the escalating conflict in the Middle East, rising crude prices and persistent foreign institutional selling,” says Dr. Ravi Singh, Chief Research Officer at Master Capital Services.
The Nifty has declined sharply in recent weeks, reflecting a broader correction as global risks intensify and inflation concerns return. The rupee has also weakened to record lows, adding to pressure on markets.
This kind of movement is often an early signal. Markets tend to price in risk before the broader economy reflects it, and current volatility suggests that investors are beginning to factor in a slowdown scenario.
RECESSION RISK DEPENDS ON OIL PRICE
Recessions do not begin with a single shock. They build when rising costs begin to affect demand.
Energy is usually where that process starts.
“If Brent crude spikes above $120 and remains there for a month, that can impact global growth. Even a global recession cannot be ruled out,” says Vijayakumar.
The impact moves in stages.
“The impact of $110 oil on the economy occurs in three waves. At first, it will be fuel surcharges from transport and logistics companies. The short-term wave affects food and FMCG, while the medium-term wave influences core inflation,” says Aamir Makda, Commodity and Currency Analyst at Choice Broking, a financial services firm.
At higher levels, the risks become more pronounced.
“If (crude oil) prices remain at or above $130 for more than two quarters, historical data suggest potential recessions in major economies,” adds Makda.
The key variable now is time.
“It is difficult to predict whether this would turn out to be a short-term issue or a protracted problem. Chances are that this would be temporary since a protracted problem would be disastrous for all,” says Vijayakumar.
There are also more balanced views on how the situation could evolve.
“The current escalation hinges on several unknowns. For now, crude is facing a supply chain disruption rather than a fundamental shortage, though attacks on energy infrastructure are heightening risks. Oil above $130 could trigger demand destruction,” says Ankita Pathak, Head of Global Investments at Ionic Asset.
“If the conflict lasts a few more weeks, the economic impact may stay cushioned. A prolonged war, however, could drive demand destruction, restrict rate cuts amid rising inflation, and tighten liquidity with broader ripple effects,” adds Pathak.
COST OF WAR
The impact is no longer confined to markets. It is beginning to show up in everyday costs.
Airfares and freight charges have started rising as fuel costs move higher. For households, the effect is more immediate. LPG prices have already increased by about Rs 60 per cylinder, and supply disruptions linked to shipping delays are affecting availability in parts of the country.
For households, that shift is immediate. Fuel gets costlier, transport follows, and everyday expenses begin to rise.
Cooking gas deliveries have slowed in recent weeks, and businesses dependent on LPG and LNG, including restaurants and small manufacturers, are beginning to feel the strain.
India imports nearly 85-90% of its crude oil, making it particularly sensitive to global price and supply shocks.
India’s inflation outlook is also at risk. CPI or retail inflation, which stood at 3.21% in February 2026 before the escalation, could rise sharply if crude remains elevated.
“Sustained oil above $100 per barrel could push inflation beyond 5% in the coming quarters,” says Dr. VP Singh, PGPM Director and Professor of Economics at Great Lakes, Gurgaon.
He adds that the pressure is not limited to inflation alone. “Retail pump prices will have to reflect the true crude oil price,” Singh says, pointing to the gap between global crude and domestic fuel pricing.
Singh also sees broader global risks building. “There is a very high probability of a global slowdown if disruptions persist, particularly as major economies remain heavily dependent on energy supplies from the Middle East,” he says.
However, he adds that India may remain relatively resilient. “India is likely to remain on a growth trajectory, with limited risk of entering into a recession,” Singh says.
The global economy is not in a recession yet. But the conditions that typically lead to one are already forming. Oil prices have shot up. Supply remains uncertain. And the pressure is moving through the system, from markets to households.
If the disruption continues, the shift will not be sudden. It will build through higher costs, weaker demand and slowing growth.
Recessions rarely arrive with a warning.
