Oil Prices Explained: $67 to $120 in One Week — How It Affects You
Oil Prices Explained: $67 to $120 in One Week — How It Affects You
On February 27, 2026, a barrel of Brent crude oil cost $67. One week later, the same barrel cost $120. That 79% increase in seven days is one of the fastest and most dramatic oil price spikes in modern history, rivaling the shocks of 1973, 1979, and 1990.
For most people, oil prices are abstract numbers scrolling across a business news ticker. But when oil nearly doubles in a week, the effects reach into every corner of daily life, from the price of petrol at the pump to the cost of tomatoes at the vegetable market. This article explains, in plain terms, how global oil pricing works, why the Iran war caused such a dramatic spike, and exactly how it affects you.
How Global Oil Prices Are Set
Contrary to popular belief, no single country or organization sets the price of oil. The price is determined by trading on global commodity exchanges, primarily the Intercontinental Exchange (ICE) in London, where Brent crude is the benchmark, and the New York Mercantile Exchange (NYMEX), where West Texas Intermediate (WTI) is traded.
Thousands of traders, including oil companies, refineries, hedge funds, and speculators, buy and sell oil futures contracts every day. A futures contract is an agreement to buy or sell oil at a specific price on a future date. The price of these contracts reflects the market's collective assessment of supply and demand.
When traders believe supply will be tight relative to demand, prices rise. When they believe supply will be abundant, prices fall. The key word is "believe," because oil prices are driven as much by expectations and fear as by actual physical supply and demand.
Why the Iran War Caused Such a Massive Spike
The Iran war triggered the price spike through multiple reinforcing mechanisms.
The Strait of Hormuz Closure: The most immediate cause was Iran's closure of the Strait of Hormuz, through which approximately 21 million barrels of oil pass every day. That represents roughly 20% of the world's total petroleum consumption. When Iran deployed naval mines, fast attack boats, and anti-ship missiles to block the strait, it instantaneously threatened to remove one-fifth of global oil supply from the market.
Fear Premium: Beyond the physical supply disruption, traders added a massive "fear premium" to oil prices. The concern was not just that Hormuz was currently blocked, but that the conflict could escalate further, potentially damaging oil production facilities in Saudi Arabia, Iraq, Kuwait, and the UAE. This fear of future disruptions drove speculative buying that amplified the price increase.
Iranian Production Offline: Iran itself produces approximately 3.2 million barrels per day. With the country under attack and its infrastructure damaged, this production was taken offline, further tightening the global supply picture.
OPEC+ Paralysis: The Organization of the Petroleum Exporting Countries and its allies (OPEC+) were unable to respond effectively. Saudi Arabia, the only OPEC member with significant spare production capacity, was hesitant to increase output when its own oil facilities were under threat from Iranian retaliation.
The Indian Oil Import Machine
India is the world's third-largest oil consumer, after the United States and China. The country consumes approximately 5.5 million barrels of oil per day, of which roughly 90% is imported. This extreme dependence on imported oil makes India uniquely vulnerable to global price shocks.
India's oil imports come from a diverse set of suppliers. Before the crisis, the top sources were Iraq, Saudi Arabia, Russia, the UAE, Kuwait, and Nigeria. Many of these suppliers ship their oil through or near the Strait of Hormuz, meaning the closure affects not just the price of oil but also the physical availability of supply.
India's annual oil import bill before the crisis was approximately $150 billion. At $120 per barrel, that bill could increase to $250 billion or more annually, a difference that would wipe out India's current account surplus and weaken the rupee significantly.
How $120 Oil Hits Your Daily Life
The impact of high oil prices cascades through the economy in ways that affect virtually every Indian household.
Petrol and Diesel: India's fuel prices are partially deregulated, meaning oil marketing companies (Indian Oil, Bharat Petroleum, Hindustan Petroleum) can adjust prices based on international benchmarks. However, the government often intervenes during election periods or crises to limit price increases, absorbing the cost through oil company losses or subsidy payments.
At $120 per barrel, petrol prices in major Indian cities could reach Rs 115-125 per liter without government intervention, up from roughly Rs 95-105 before the crisis. Diesel, which is the backbone of India's freight transportation system, faces similar increases.
LPG (Cooking Gas): The price of a 14.2 kg LPG cylinder has already risen to Rs 913. With 330 million Indian households using LPG for cooking, this is perhaps the most directly felt impact. At current trajectories, LPG could breach Rs 1,000 per cylinder in the coming weeks, a psychologically significant threshold that would cause immense political and social pressure.
Food Prices: This is the hidden but devastating transmission mechanism. Diesel powers the trucks that transport food from farms to markets. It powers the tractors that plough fields. It powers the fishing boats that bring seafood to shore. When diesel prices rise, the cost of everything from rice to vegetables to fish increases.
Additionally, petroleum derivatives are essential inputs in fertilizer production. Urea, DAP, and other fertilizers that Indian agriculture depends on will become more expensive, increasing the cost of the next harvest and threatening food security.
Transportation: Auto-rickshaw fares, taxi rates, bus tickets, and airline fares all increase when fuel costs rise. For the hundreds of millions of Indians who commute daily by road, this means a direct reduction in disposable income.
Electricity: India generates approximately 2% of its electricity from oil-fired plants, a small share nationally but significant in certain states and during peak demand periods. More importantly, natural gas prices tend to move in correlation with oil prices, and gas-fired power plants account for about 7% of India's electricity generation. Higher electricity costs feed through to industrial production and, eventually, consumer prices.
Inflation: The Reserve Bank of India (RBI) estimates that every $10 increase in crude oil prices adds approximately 0.3-0.4 percentage points to India's Consumer Price Index (CPI) inflation. The $53 per barrel increase from $67 to $120 could therefore add 1.5 to 2 percentage points to headline inflation, pushing it well above the RBI's 6% upper tolerance band.
The Government's Options
The Indian government faces an unenviable set of choices in responding to the oil price spike.
Absorb the cost: The government can cut excise duties on petrol and diesel, as it did during previous spikes. Central excise duties currently account for approximately Rs 20-25 per liter of petrol. Cutting these duties would reduce prices at the pump but would blow a massive hole in government finances at a time when fiscal consolidation is a priority.
Subsidize LPG: The government can increase subsidies on LPG cylinders, absorbing the difference between the market price and a lower consumer price. However, the cost of such subsidies would run into tens of thousands of crores per month at current oil prices.
Release strategic reserves: India's Strategic Petroleum Reserve (SPR) holds approximately 36.7 million barrels, enough for roughly 9.5 days of import cover (or about 25 days of net strategic plus commercial stock). Releasing reserves could provide temporary relief but would leave India even more vulnerable if the crisis extends.
Diversify supply sources: India could increase imports from non-Hormuz sources, particularly Russia (which has been selling discounted crude since 2022) and African producers. However, shifting supply chains takes time and may involve premium pricing.
Negotiate with Iran: In a diplomatic gamble, India could engage directly with Iran for guaranteed passage through the Strait of Hormuz for Indian-flagged vessels, leveraging India's historically positive relationship with Tehran.
How Long Will Prices Stay High?
The duration of the oil price spike depends entirely on the trajectory of the Iran conflict. If the Strait of Hormuz is reopened within weeks, prices could retreat to $80-90 per barrel relatively quickly, as the IEA's release of 400 million barrels from strategic reserves helps bridge the supply gap.
If the closure extends for months, however, the market will need to find a new equilibrium at much higher prices. Some analysts at major investment banks have projected Brent at $150 per barrel if the strait remains closed through the summer of 2026.
For Indian consumers, the message is clear: the oil price spike is not a temporary blip. It reflects a fundamental disruption to the global energy system, and its effects will be felt in household budgets for months, if not years, to come. Understanding how oil prices work and how they affect daily life is the first step in preparing for a period of economic turbulence.
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