US strikes on Iran spark fear of wider escalation

Focus on Iran's Strait of Hormuz; no regime change plan, says US defence secy

- Gireesh Chandra Prasad, Rhik Kundu, Rituraj Baruah & Srushti Vaidya

The world braced for a deep disruption after the US struck three Iranian nuclear sites overnight, prompting Tehran to warn of "everlasting consequences" as the war in West Asia entered uncharted waters.

While the US said it has no plans for a regime change and called for negotiations, the West Asian country rejected the proposal, even as world leaders, including Prime Minister Narendra Modi, called for de-escalation. All eyes are now on whether Iran will follow up on its threat of closing the Strait of Hormuz and rock crude oil flows, and whether Tehran will attack US bases in the West Asia and spark a wider conflict.

The flare-up has intensified external risks to India's economy, even as many analysts say the escalation may prove short-lived. At stake for India is the potential fallout from surging oil prices, a widening current account deficit, higher energy and shipping costs fuelling domestic inflation, investor risk aversion, capital outflows, and broader risks to economic growth.

Sentiment hit

"The bigger impact will be on sentiment. However, oil intensity has been going down structurally. For India too, the share of oil imports in total imports has come down from 21% in 2018 to 16.5% in 2025," said Sachchidanand Shukla, group chief economist at Larsen & Toubro. Shukla added that India can absorb oil prices up to $85 a barrel without triggering large macro imbalances. "There is no need to panic, and one needs to keep an eye on how the situation evolves," he said.

Dire straits On Sunday, Iranian media reported that its Parliament had agreed to close the Strait of Hormuz, leaving the final decision to the country's Supreme National Security Council. The Strait is a strategic waterway through which 20% of the world's oil cargo passes.