This appeared in the Times of India on 4 March 2026 (link).
Nearly everyone expected this to be a short war. Not just those who started it, but also commodity markets.
Oil prices jumped around 10% when the conflict started, much less than the reaction when Russia attacked Ukraine. This is understandable: Iran exports only 1.5-1.8 of the 3.2mn barrels per day (mbpd) it produces, of which 80-90% are bought by China. Disruption to these volumes, if any, hits small in an otherwise oversupplied oil market: global demand is 105mbpd, of which around 48mbpd is traded.
However, the reaction of oil prices to significant escalation subsequently has also been less than feared. Tanker traffic through Strait of Hormuz has nearly stopped, and more than 20mbpd of oil flows through it. There has also been a clear broadening of the conflict, like attacks on Qatar’s liquefied natural gas (LNG) terminal (nearly a fifth of global supply, forced to shut down), and the Saudi Arabian refinery.
Future prices of oil have risen less: Markets expect crude oil prices to fall by nearly 10% over the next 12 months. Underlying that expectation is belief in US and its allies not allowing Strait of Hormuz to be closed for more than a few days, and also belief that the war will end in a short span of time – without much damage to oil production and transport facilities.
That major buyers have built large inventories (for example, China has more than 100 days of supply now stored) is also a factor. Further, the US navy can start to escort oil tankers if the closure lasts longer, like it did during the 1980 Iran-Iraq war. That may be needed to reassure shipowners who are staying away, and insurance companies that have withdrawn cover from tankers plying through Strait of Hormuz.
It is in no one’s interest, other than the current Iranian regime’s, to prolong this conflict.
The US has limited appetite for a sustained rise in oil prices. There are internal political compulsions there, with the upcoming midterm elections acting as a deadline on how long fuel prices at the pump can stay high. Voters hate high fuel prices and have limited appetite for another long war.
There are broader strategic objectives too, as the US-China conflict is increasingly about the price and availability of energy. China dominates the renewable energy value chain and is adding power capacity at a remarkable pace. It added 543 gigawatts of power capacity just last year, more than the stock of capacity in India. Wright’s law (the more the production of something, the lower its cost) has helped bring down the cost of electricity. The US is betting on reducing oil and gas prices, as its new data centres are increasingly relying on gas-fuelled captive power plants, given challenges with the grid.
Of major players who have a stake in the outcome, China was the biggest buyer of Iranian oil. As much as it would like the 15-20% discount it received on Iranian crude to continue (others did not buy because of fear of sanctions), it is also a major energy importer and the biggest buyer by a margin of seaborne crude.
Other major powers in West Asia also do not want to see prolonged disruption, and Iran’s attacks on even civilian areas are likely an attempt to get them to end the war.
Will Iran be able to sustain its fight beyond a few days? As much as the prevailing consensus is that their ammunition will end before US’s and Israel’s, we must remember that the same was expected of Ukraine. Ukraine eventually managed to get support from EU and US – one has to wait and see if the Iranian regime can get support from other countries.
It also appears unlikely that an alternative govt can form quickly – that has the Revolutionary Guards on their side, has reasonable mass acceptance, and is also acceptable to the US. China may have limited explicit presence but can be expected to make its impact felt too. Another thing about regime change is that it is hard to engineer from the skies, and there is a long history of countries that have seen their leadership removed only to enter decades-long chaos.
In the interim, India, which imports more than half of its dense energy, is vulnerable to a prolonged conflict. Nearly half of India’s gas came from Qatar, which is now disrupted, and every dollar per barrel increase in oil prices adds $1.8bn per year. Gas markets may see a bigger impact than oil as they were not prepared for Iran to attack Qatar, which is seen as friendly to it.
A $10 per barrel increase in oil prices means an additional outflow of $18bn if this lasts a year. The significant foreign currency reserves India has should help tide over a near-term shortfall, though a sharper increase in oil prices can create second-order pressures.
However, the end of the present conflict is in effect in the hands of the armies that started it. The stated objective of ‘regime change’ can in theory have been met already, with the death of Ayatollah Khamenei and his next level leadership. An early ‘Mission Accomplished’ may well be the outcome if the conflict persists beyond the threshold permitted by American politics. The markets may be right.