India Faces Forex and Oil Strain From Hormuz Crisis
India’s Finance Minister Nirmala Sitharaman warned on Monday, June 15, that the economy is under “severe strain” from rising crude oil and fertiliser import costs, foreign exchange uncertainty, and a projected monsoon shortfall — pressures she linked directly to the ongoing crisis in West Asia and the closure of the Strait of Hormuz. Speaking at the Hero Mindmine Summit 2026 in New Delhi, Sitharaman said the government and the Reserve Bank of India had begun a series of interventions to bring foreign capital back into the country, but told the audience these measures were only the first step in a longer response.
The warning reflects the cumulative weight of a geopolitical shock that has hit India from multiple directions at once. The country imports approximately 87 per cent of its crude oil requirement, with 46 per cent of that volume transiting through or near the Strait of Hormuz, according to Reuters. The strait’s closure has driven up not just crude prices, but also insurance premiums and shipping risk costs for vessels carrying Indian imports.
“Not only is the price of crude a challenge, but insurance cover and risk of crude vessels passing through the Strait of Hormuz is also high,” Sitharaman told the summit, according to ProKerala. “India must maintain adequate foreign exchange reserves to manage rising costs.”
India imports 60 per cent of its domestic LPG consumption, and 90 per cent of that volume also moves through the Strait, Reuters reported. The compound effect on India’s import bill — crude, gas, and fertiliser arriving through the same choked waterway — has made the fiscal exposure acute.
Fertiliser costs present a separate but related pressure point. Government sources told Reuters that the fertiliser ministry has sought a 100 per cent increase in subsidy allocations for the current fiscal year. The budget had estimated a fertiliser subsidy of Rs 1.71 lakh crore for the year. Strait closures have narrowed the global pool of available fertilisers, complicating the tendering process and creating two parallel challenges: securing supply and managing rapid price movements.
India’s foreign exchange reserves declined by $711 million to $681.61 billion in the week ended June 5, according to Business Standard.
On the capital inflows side, Sitharaman said the government and the RBI have begun rolling out targeted measures to pull foreign investment into Indian financial markets. On June 5, the government expanded the list of securities eligible under the Fully Accessible Route — the channel through which foreign portfolio investors can hold Indian government bonds without restriction — to include new issuances in government securities. Income tax exemptions were simultaneously extended to cover interest income and capital gains earned by foreign portfolio investors from these securities, Business Standard reported.
The RBI moved in tandem. On June 5, it allowed banks to access its swap facility for Foreign Currency Non-Resident, or FCNR(B), deposits with maturities of three to five years, through September 30. The arrangement lets banks swap dollar deposits with the RBI, insulating them from currency risk. The central bank also introduced a forex swap facility to encourage public sector undertakings to raise external commercial borrowings until September 30, with the RBI absorbing hedging costs under that framework, Business Standard reported.
“Although at the moment it’s confined to the bond market, certainly that’s not the end of the story. There will be more. We recognise, we need more foreign capital to come in,” Sitharaman said, according to Business Standard.
The government confirmed that additional measures to increase foreign direct investment flows are being prepared, with the stated aim of bolstering forex reserves and stabilising the rupee, Reuters reported.
Sitharaman’s public acknowledgement of “severe strain” is notably direct. She described the Indian economy as exposed to global uncertainties it cannot control — tariff shifts, commodity price swings, and supply chain disruptions — while noting that the country’s large domestic market provides a partial buffer. India remains a significant net importer of key industrial and agricultural inputs, leaving its fiscal position exposed when global prices spike.
Regional and Global Impact
The West Asia crisis has compressed India’s options simultaneously across energy, food security, and financial stability. A sustained closure of the Strait of Hormuz would force the country to source crude and fertilisers from more distant markets at higher freight and insurance costs — a structurally different challenge from a short-term price spike. The fertiliser impact carries direct consequences for agricultural input costs across India’s farming sector.
On the financial side, the rupee and India’s current account remain the primary transmission channels from global energy markets to the domestic economy. The package of bond market liberalisation measures and FCNR(B) swaps is designed to offset some of this pressure by drawing dollar inflows. A broader US-Iran peace deal, reported by multiple outlets on June 15, sent oil prices down more than 4 per cent on Monday and could partially ease the strain if it holds and allows Hormuz shipping to normalise.
Background
India presented its Union Budget for the 2026-27 fiscal year on February 1, with Finance Minister Sitharaman setting a fiscal deficit target of 4.3 per cent of GDP. Total expenditure was set at Rs 53.5 lakh crore. The fertiliser subsidy estimate of Rs 1.71 lakh crore was included in that budget. Crude oil prices surged from around $70 per barrel to $122 per barrel within a single month following disruptions in the Strait of Hormuz caused by the West Asia conflict, as Sitharaman noted in Parliament in late March, according to News on AIR. India’s forex reserves had reached a record high of over $728 billion in late February before the West Asia-linked drawdown began.
What Happens Next
Sitharaman confirmed on June 15 that further policy measures to attract foreign capital are in preparation, beyond the bond market package announced on June 5. The government is working with the RBI on the pipeline of additional steps, though no specific timeline has been given. The fertiliser ministry’s request for a 100 per cent subsidy increase will require a government decision on supplementary budget allocations. The India Meteorological Department’s monsoon forecast for the 2026 season, which Sitharaman cited as a source of uncertainty, will be updated progressively through June and July. The US-Iran peace deal reported on June 15 may, if formalised, reduce crude and shipping pressure on India’s import bill — but Sitharaman’s office has made no formal statement on its fiscal implications as of Monday.
