In the aftermath of the US-Iran war, what is the outlook for the global oil market? Will new sanctions-related risks emerge? Finally, what strategies will oil producers and buyers adopt to manage geopolitical risks?

These three questions are relevant for India because of its voluminous oil consumption and rising imports. India relies on imports for over 85% of its petroleum needs and currently consumes over 4.5 million barrels per day of oil. This number is projected to increase to 10 million barrels per day over the next 15-20 years. Therefore, each of these issues is relevant to India.

Outlook for the Global Oil Market

There is a comfortable surplus supply in the global oil market. This is evident from the fact that despite the single biggest disruption since World War II, prices have stayed well under control. As of early July, while the oil flow through the Strait of Hormuz is much lower than the long-term average, the price of oil is back to its pre-crisis levels.

This is a sharp contrast from the 2005-07 era, when the oil supply was tight, and news such as an accident at an oil field or a terror attack in an oil-producing country was enough to send the price rising. Judging by the relatively sluggish movements in oil prices—compared to the magnitude of such moves historically—it can be concluded that the global oil supply comfortably exceeds the demand.

Historically, OPEC has been regarded as the swing producer in the oil market, which sets prices by reducing or increasing oil production. However, this has not been the case for the past several years, largely due to rising oil production in the US, and falling oil demand from the Western world. The shale oil producers in the US are the true swing producers now. Within OPEC, Saudi Arabia and the UAE have historically maintained ‘spare production capacity’—which helps keep markets stable. However, this also represents hundreds of billions of dollars of idle capex.

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UAE’s exit from OPEC is a belated acknowledgement that the grouping is no longer a swing producer, and keeping ‘spare capacity’ incurs a cost without commensurate benefits.

For India, this is a favourable situation, given our dependence on imports, and the fact that our imports are going to increase.

Will new sanctions-related risks emerge?

Amid the US-Iran conflict, the US initially tried to change the status quo in the Persian Gulf using kinetic means, and has failed to achieve its originally declared objectives. Therefore, it will increasingly rely on non-kinetic means, meaning sanctions.

It is mostly the US and Western nations which impose sanctions. While most non-Western governments don’t recognise American or unilateral sanctions, corporations have to contend with the reality of American centrality to the global financial system and have to plan and act accordingly. If I am a large oil company, I have global operations and require access to the international financial markets. I cannot afford to run afoul of US sanctions. RIAC has done significant work on US sanctions, and readers should review their papers on the subject.

Russia and Iran will continue to be at the receiving end of these sanctions, which will be periodically used as leverage, over sellers as well as buyers. Given the surplus of oil in the world market, the US will have greater freedom of action than in the past, and sanctions will have a greater impact on oil exporters.

Material 2

Russia, India, and China Forging a New Eurasian Energy Architecture

What strategies will oil producers and buyers adopt to manage geopolitical risks?

Historically, India has invested in overseas oil and gas fields since the early 2000s, to reduce the financial exposure to high oil prices. However, over the past decade, outbound acquisitions by Indian oil companies have virtually come to a halt. This could have been due to the loud and public signalling by the Indian government regarding renewable energy and green technologies. Most of the Indian oil industry is owned by the government, and if your largest shareholder has decided that oil is on the way out, a professional manager is unlikely to stick his neck out and go for a major acquisition.

Since 2019, Indian policymakers have pushed aggressively for electric vehicles, including support for manufacturing and other subsidies. However, penetration remains low at less than 5% for cars and 10% for two-wheeled vehicles. This is the share of EVs in total vehicle sales over the last few months – the actual stock of EVs as a segment of the vehicle population will be lower. This is perhaps the lowest penetration of EVs for any major automotive market. Unless the issues related to the supply of critical minerals, including rare earth magnets, and China’s dominance of the supply chain are addressed, adoption will lag.

The other way in which India is trying to deal with high oil prices is by aggressively pushing for biofuels – ethanol which can be blended with petrol. This is a faulty strategy, as it co-opts agricultural land in order to grow cheap fuel. The ‘savings’ from importing less oil are illusory, as India ends up importing more oilseeds and pulses – crops which have been supplanted by biofuels. Crops used for ethanol production – sugarcane and maize – are also water intensive, and India remains the most water-stressed among the major economies. Considering these factors, my view is that ethanol is a less efficient solution to the oil question, and is unlikely to be a viable alternative.

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In summary, India has no options regarding hydrocarbons – the dependence on imported oil is not going to change. The best bet for India would be to revive investments in overseas oil, and to ensure that new reserves keep reaching the market.

A well supplied oil market is the reason why the US-Iran war didn’t become an enormous energy and economic shock. As an oil buyer, India should invest to make sure it remains so.

Valdai Discussion Club

Material 4

Eurasia’s Infrastructure— An Indian Perspective

Material 5

Fyodor Lukyanov: Russia and India Will Never Pose a Threat to Each Other

Modern conflicts have repeatedly demonstrated that critical infrastructure — energy grids, ports, water systems, nuclear facilities, communications networks, refineries, transport corridors, and digital systems — has become a central arena of strategic competition. Sustained strikes on energy infrastructure in the Russia-Ukraine theatre, competing claims over drone attacks on Gulf maritime and energy assets, the reported drone incident near the Barakah nuclear power plant in May 2026, and the May 2025 Pakistan-India crisis point to the same trend: civilian and dual-use infrastructure is increasingly exposed to military, technological, and political pressure.

The issue is no longer any single platform. Drones, cyber-physical operations, electronic warfare, precision strikes, maritime sabotage, information manipulation, and space-enabled ISR increasingly form a converging ecosystem capable of generating strategic effects. In nuclearised regions, this convergence compresses decision timelines, blurs attribution, multiplies uncertainty, and transforms critical civilian infrastructure into an escalation-sensitive domain. 

Strategic stability in the twenty-first century increasingly depends on technological discipline, infrastructure resilience, and crisis communication as much as it relies on traditional arms control. Responsible powers share a clear common interest: building resilience, preserving political control, and drawing practical lines around the most sensitive targets.

The shift from single-platform warfare to ecosystem warfare marks a profound change. A drone may damage a facility; cyber operations may slow recovery; electronic warfare may obstruct navigation and emergency response; GNSS spoofing may disrupt aviation or shipping; disinformation may amplify panic; and maritime sabotage may threaten undersea cables, pipelines, ports, and offshore energy systems.

Their combined impact on public confidence, crisis decision-making, and escalation control defines the challenge. These tools are characterised by low cost, high deniability, rapid proliferation, and attribution uncertainty. As a result, mutual vulnerability has become the defining feature of the age of converging threats. No state can assume that only its adversary’s infrastructure will remain exposed. Energy grids, ports, water and desalination plants, nuclear facilities, hospitals, and civilian communications networks are now strategically exposed.

A cheap drone can produce an expensive crisis. Drone warfare is ecosystem warfare. The problem is not only destruction; it is interpretation.

The Russia-Ukraine theatre has shown how drone and missile campaigns, cyber activity, electronic warfare, and attacks on energy and transport infrastructure can produce sustained coercive effects. Strikes against refineries, airfields, logistics networks, power facilities, and strategic aviation assets demonstrate both the reach of modern systems and the difficulty of defending large, distributed infrastructures against saturation, deception, and low-cost attack. The lesson extends beyond one theatre: once infrastructure becomes part of strategic signalling, civilian vulnerability can become a source of political pressure and escalation risk.

In the Middle East, maritime attacks, proxy-linked operations, threats to energy flows, and strikes or incidents around ports, airfields, and nuclear-adjacent facilities have shown how infrastructure disruption can become a tool of political signalling with regional and global repercussions. The Gulf is especially sensitive because energy infrastructure, maritime chokepoints, desalination systems, and military facilities exist in close proximity.

South Asia represents one of the most compressed nuclear cases. Here, geography shortens warning times, mistrust compresses judgement, and technology compresses escalation. The May 2025 India-Pakistan crisis illustrated these dynamics vividly. The interaction of air, missile, drone, cyber, ISR, electronic warfare, and information domains showed how fragile assumptions of limited war remain between nuclear neighbours. Claims and counter-claims from that period remain contested, but the larger strategic lesson is clear: once multiple domains interact under technological pressure, escalation cannot be neatly compartmentalised. 

In South Asia, the more stabilising responses have been those that combined credible deterrence with disciplined restraint and firm political control. Within this logic, Pakistan’s Full Spectrum Deterrence should be understood as a defensive posture intended to deny coercive advantage across the escalation spectrum while preserving crisis stability. Restraint should be read as controlled resolve, not as diminished seriousness. Quiet deterrence behaviour can coexist with acute strategic risk. In compressed nuclear environments, assumptions about manageable limited war or unilateral escalation dominance remain inherently fragile. Doctrines that search for usable coercive space under the nuclear shadow place additional stress on strategic stability.

These developments highlight broader common interests among responsible states. No state wants its energy grids, ports, water systems, nuclear facilities, hospitals, transport corridors, undersea cables, or communications networks held permanently at risk by cheap, deniable, or hard-to-attribute technologies. These capabilities cannot be uninvented. The answer lies in resilience, political control, crisis communication, and practical restraint around the most dangerous targets.

Specific escalation-sensitive categories merit reciprocal understanding: nuclear command-and-control and early-warning systems, nuclear power plants and associated safety systems, major energy nodes, water and desalination infrastructure, ports, hospitals, undersea cables, civilian communications networks, and emergency-response systems. Even when some facilities have dual-use value, their disruption can generate civilian harm, public panic, and dangerous escalation pressure. In nuclearised regions, a conventional strike on strategic-support infrastructure can be misperceived as preparation for wider conflict.

These risks become especially acute around nuclear-adjacent infrastructure. The reported drone incident near Barakah in May 2026, which reportedly caused a fire outside the plant’s inner perimeter without leading to a radiological release or injuries, illustrates how even a limited and unattributed event near nuclear infrastructure can trigger wider strategic alarm.   

Bans on drones, cyber tools, electronic warfare, or precision-strike technologies are unrealistic. All nuclear powers and other technologically advanced states now employ them for ISR, border security, counter-terrorism, and conventional operations. The practical path forward lies in disciplined use and reciprocal restraint.

Near-term measures can include hotlines and incident-notification mechanisms for drone, cyber, maritime, and missile-related events; no-drone or non-interference understandings around nuclear-adjacent facilities; restraint around energy, water, port, hospital, and communications infrastructure; investment in redundancy, segmentation, air defence, cyber resilience, counter-UAS capabilities, and rapid recovery, along with strengthened crisis communication to lengthen decision timelines.

In a multipolar world facing accelerating technological convergence, responsible states have a shared stake in ensuring that emerging tools serve stability rather than unchecked coercion. Resilience is now a strategic-stability requirement. Technological discipline must remain under accountable political judgement. Preventive diplomacy, credible deterrence, and pragmatic norms around critical civilian infrastructure offer the foundation on which future crises can be managed rather than allowed to escalate uncontrollably.

The next crisis will move faster than diplomacy. Deterrence must therefore be credible before the crisis begins, disciplined once it starts, and communicative before it becomes uncontrollable.

Valdai Discussion Club

The unprovoked attack by the United States and Israel on Iran on 28 February 2026 marked the beginning of a new phase in the crisis that has gripped the Middle East almost continuously for several years. Its origins lie in the combination of the extraordinary complexity of regional politics and the intervention of the world’s wealthiest and most heavily armed power. The consequence is a tightly tangled knot of contradictions among the region’s states, where fierce rivalry coexists with an ability to reach pragmatic agreements—agreements which, however, inevitably remain merely tactical solutions within an almost unbroken cycle of conflict.

There has never been genuine stability in the Middle East, and in that sense it is indeed a unique arena of international politics. Yet even the most tragic events in the region have never, in reality, prompted fears that their escalation might have catastrophic consequences for humanity as a whole. First, because the clashes taking place there have never affected the vital interests of the great powers—the United States and the Soviet Union in the twentieth century, and now the United States, Russia, and China. All of them have regarded the region primarily as an important arena for competition, but not for a struggle requiring the full deployment of their resources. Second, the region itself has lacked powers capable of pursuing revolutionary policies on a global scale.

In other words, interstate contradictions in the Middle East have always been a bleeding wound of global politics, but one incapable of bringing about a dramatic outcome for the entire organism of the international system.

Now, however, the situation has changed abruptly. To be sure, the major global powers are still not affected by the conflict to such an extent as to provoke destructive action on a worldwide scale. Yet the consequences of the clash between the United States–Israel coalition and Iran have rapidly become a source of global economic instability, creating conditions in which all countries that could be considered significant players may reconsider their strategic priorities—both in terms of development and of ensuring their own security.

Tehran’s resolute response—halting shipping through the Strait of Hormuz, as well as launching attacks against American military bases and other facilities in the Persian Gulf—came as a surprise to most countries and to participants in the global market. Overnight, supply routes crucial for the provision of energy resources to a number of major powers, including giants such as China and India, were disrupted. Taken together, many observers believe, these developments may exert such a destabilising effect on the global economy that it could begin sliding towards a worldwide recession.

Even more significant are the political consequences. The entire world has seen that a major regional conflict can undermine the very foundations of economic ties that, until recently, were considered unshakeable—even amid broader stabilisation. Equally shocking and instructive have been the purely political outcomes of the conflict. The evident inability of the United States, despite its military might, to secure victory using only conventional weapons has once again cast doubt on the entire concept of America’s decisive influence over world affairs. Until very recently, despite an obvious reduction in its available resources, the United States was still widely regarded as a power capable, in any circumstances, of bringing a vastly weaker opponent to its knees.

An additional example reinforcing this perception was the swift overthrow of the president of relatively small Venezuela on 3 January 2026 and the abrupt shift in that country’s political course. It was with such expectations that, two months later, the world approached the American and Israeli attack on Iran. Yet within days it became clear that the stated objectives of the war did not appear achievable: Iran’s political system withstood a devastating blow to its top leadership, no internal unrest emerged, and its armed forces retained the capacity to operate even under constant aerial pressure.

Most observers agree that the primary reason for the failure of the plan for a swift victory lay in the resilience of the Iranian people and state—something the attacking side had clearly failed to take into account. We do not yet know how the crisis created by the United States and Israel will develop, but even its interim consequences already provide grounds for important conclusions. 

For the United States itself, the attack on Iran was, of course, a war of choice rather than necessity. For all its combined capabilities, the Iranian government neither possessed the resources nor demonstrated the intent to pose a fundamental threat to America’s survival or its core interests.

To some extent, such a threat could be said to exist with regard to Israel, Washington’s closest ally in the region. However, despite their closeness, the interests of Israel and the United States are not identical. This is precisely why, even when faced with the prospect of de facto defeat, Washington has been unwilling to resort to the most radical military means against its adversary.

At present, regardless of how the current phase of the conflict concludes, one may expect a certain degree of reflection within the United States on what has occurred. There is also hope that the lessons of the attack on Iran may prompt Americans to reassess their ambitions in global and regional politics, aligning them more closely with the realities so clearly exposed by the Iranian crisis. This, however, will encounter obstacles—whether under the current administration in Washington or any future one.

First, the United States is, in fact, a power whose political elite arguably possesses one of the narrowest foreign-policy outlooks today. Decades spent near the summit of global politics, and in relative insulation from most of the world’s problems, have led American politicians and thinkers to view the world almost exclusively through the prism of their own state. Second, over the past eighty years the United States has accumulated an extraordinary number of commitments across different parts of the world, the mere maintenance of which creates fertile ground for ventures and failures such as the Iranian episode.

For China, widely regarded as the United States’ principal strategic competitor, the events surrounding Iran also offer cause for reflection. Above all, Beijing seeks to maintain relations with the current American administration that are restrained yet respectful. However, the very fact of the US attack on Iran—violating all norms of international law—significantly narrows the room for manoeuvre and compels Beijing to adopt a more demanding stance towards Washington, expecting concessions in return. All the more so since this unprovoked attack has been followed by a clear display of American weakness.

Moreover, the severe damage inflicted by the conflict around Iran on the global economy and energy supplies is prompting China to reassess the security of its own supply chains. This is particularly relevant given the substantial investments Chinese companies have made in Iran and other Middle Eastern countries, and their growing concern over how destructive political upheavals may prove. It is conceivable that China may now begin to reconsider its strategy of economic engagement with distant and vulnerable regions.

Russia, for its part, has appeared to many as a beneficiary of the conflict. Indeed, the dramatic events surrounding Iran have led to a significant rise in prices for Russia’s principal export commodities.

They have also altered the conditions in which a separate, Moscow-proximate international political crisis in Eastern Europe is unfolding. Yet in the longer term, Russia does not appear interested in a complete collapse of American influence in the Middle East. In moderate measure, that influence forms part of the complex diplomatic landscape that Russia views as a foundation for relatively peaceful global development.

In other words, the attack by the United States and Israel on Iran—and, above all, their failure to achieve their objectives—has already posed new questions for all the great powers, while simultaneously opening certain opportunities for political dialogue. Making use of these opportunities would be highly beneficial for international politics as a whole.

Valdai Discussion Club