Within 72 hours of the first US and Israeli missiles striking Iranian soil, one of the world’s most critical maritime chokepoints had been shut, oil markets had gone into a historic convulsion, and the inflation calculus of governments from Tokyo to Frankfurt had been rewritten overnight. Wars, as history insists, are rarely decided on battlefields alone. Their deeper costs arrive through commodity markets, shipping lanes, inflation curves, and the slow erosion of global trust. What is unfolding in the Gulf today is not merely a regional conflict but a structural shock to the geoeconomic order.
The closure of the Strait of Hormuz in early March removed roughly 20 million barrels of oil per day from global markets, approximately one-fifth of the world’s seaborne crude and around 19 per cent of its liquefied natural gas supply. Higher crude prices are feeding inflation in Europe and Asia, complicating central bank strategies, and the US Federal Reserve faces a supply-shock tradeoff with no clean exit.
For India, the exposure has been particularly direct. With crude oil import dependence at approximately 88.6 per cent for FY 2025-26, the supply shock hit domestic inflation, the rupee, and the Reserve Bank of India’s rate calculus with force, at a moment when growth momentum was already moderating. The rupee fell past 93 per dollar on March 20, logging its worst single-day drop in over four years, with analysts warning of a further slide toward 100 if disruptions persist. New Delhi is treating the shock with pandemic-level seriousness, and the signal is visible in its budgetary choices: The allocation for the Chabahar Port project with Iran was zeroed out in the Union Budget 2026-27, reflecting a careful recalibration of strategic exposure as the geopolitical environment grows more complex.
And yet the conflict also opens a longer-term strategic window. The latest Gallup World Poll, conducted across more than 130 countries, shows US global leadership approval falling to 31 per cent in 2025, while China‘s has risen to 36 per cent, representing the widest gap in nearly two decades and running firmly in Beijing’s favour. This is not a story of convergence but of displacement, and the economic implications are structural rather than cosmetic. Approval ratings are the leading indicator of what might be called diplomatic trust, and when that trust erodes, countries lose the informal authority that lubricates trade negotiations, anchors multilateral institutions, and attracts partners to their currency, debt markets, and standards-setting processes.
A US whose global approval has hit a record low will find it progressively harder to build coalitions for sanctions regimes, to set technology standards that others adopt willingly, and to maintain the premium that dollar-denominated assets have long commanded in global capital markets. That premium was already under negotiated pressure with the BRICS nations having spent years pursuing de-dollarisation through local currency settlements and alternative payment systems. Yet the ambition has consistently outrun the architecture, with the 2025 Rio Summit producing no common currency, no coordinated strategy, and no credible vehicle to replace the dollar at scale.
What the Iran war does is shift the de-dollarisation conversation from aspiration to urgency, accelerating an erosion of US credibility that is already measurable across allied democracies and long-standing NATO partners. The self-reinforcing logic of this decline is what makes it structurally significant, where eroding legitimacy makes coalitions harder to assemble, which makes future crises harder to manage, which further erodes legitimacy.
After World War II, the international order was built on a bargain in which the US provided global public goods, security, open sea lanes, and reserve currency stability, in exchange for broad deference to its leadership, and each time that bargain frays, the institutions constructed on it, from the WTO and IMF to NATO and the dollar settlement system, lose a layer of the political legitimacy that makes them function. Viewed through this lens, the Iran war can be considered a stress test of the entire post-war architecture.
China and Russia have each identified the vacuum that the conflict has opened and moved into it, characterising effective statecraft. Beijing called for restraint, positioned itself as a mediator, and accelerated Belt and Road outreach across regions, now urgently reassessing their energy dependencies. At the same time, its strategic petroleum reserves gave it the patience that other major importers could not afford. Iran’s decision to allow Chinese-flagged vessels to transit the Strait, a concession extended to no Western power, reflects the depth of commercial relationships that Beijing has spent years cultivating and is now converting into geoeconomic leverage. Moscow, meanwhile, has filled supply gaps in Asian energy markets while publicly calling for de-escalation, and has received an unexpected windfall when the Trump administration temporarily waived sanctions on Russian oil in transit to cushion domestic fuel prices, quietly softening the very sanctions architecture that Western powers spent years constructing.
India’s response has reflected the genuine complexity of its position: Strong economic and security ties with Washington, a long-standing relationship with Tehran grounded in energy and connectivity, and deep stakes in the stability of West Asia, which hosts the largest concentration of the Indian diaspora and remains a critical market for exports and remittances. Securing passage for its flagged vessels through the Strait was a quiet but significant diplomatic achievement in a moment when most countries could negotiate no access at all.
What the conflict clarifies, however, is the direction in which India’s geoeconomic strategy must now move. First, on energy security, diversification can no longer be treated as a medium-term aspiration where accelerating renewables investment, broadening import origins, and building deeper strategic petroleum reserves are now economic imperatives rather than aspirational climate commitments.
Second, on Global South leadership, India’s ability to offer development financing and trade partnerships that are not conditional on geopolitical alignment is an increasingly rare competitive advantage, even as the 2026 Brand Finance Global Soft Power Index ranking of 32nd signals the persistent gap between its potential influence and its actual international footprint.
Third, on strategic multipolarity, India’s deepening engagement with the Gulf, Southeast Asia, and African economies is best understood not as foreign policy positioning but as risk management for an economy that cannot afford to be caught repeatedly in the crossfire of choices made in Washington or Beijing.
Finally, the geoeconomic signals embedded in this crisis and the strategic value of genuine autonomy in a fracturing world order will endure for a generation. For India, reading those signals clearly and acting on them is the more consequential task.
The writer is a Fellow and Lead, World Economies and Sustainability at the Centre for New Economic Diplomacy (CNED) at Observer Research Foundation (ORF)
