The crude oil price climbed back toward $107 a barrel on Monday after US President Donald Trump rejected Iran\’s proposal to reopen the Strait of Hormuz, capping one of the most bruising weeks for the world economy in recent memory. Just days earlier, the US Federal Reserve had raised interest rates for the first time in three years. For India, which imports close to 90 per cent of the crude oil it consumes, the twin shock of costlier oil and a costlier dollar is already squeezing stock markets, the rupee and household budgets.
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Brent crude, the international benchmark, rose more than 2 per cent in early trading on September 28 to about $106.91 a barrel, while US West Texas Intermediate climbed to roughly $94, as traders priced in the prospect of prolonged disruption through the world\’s most important oil transit route. The move, reported by Bloomberg, pushed the crude oil price back toward the year\’s highs. The spike reversed part of Friday\’s sharp decline and put crude on course for a yearly gain of about 75 per cent, with the US-Iran confrontation now in its eighth month.
Crude oil price jumps as Trump rejects Iran\’s seven-day offer
The immediate trigger for the latest crude oil price surge was diplomatic. On September 26, Trump turned down an Iranian proposal that would have reopened the Strait of Hormuz within seven days and restarted negotiations over Tehran\’s nuclear programme. In return, Iran wanted Washington to end its naval blockade of Iranian ports, lift sanctions on Iranian oil sales and observe a ceasefire that included Lebanon.
The offer had taken shape the previous week on the sidelines of the United Nations General Assembly in New York, where US envoys Steve Witkoff and Jared Kushner held indirect talks with Iranian Foreign Minister Abbas Araghchi, with Qatari officials ferrying messages between the two delegations. According to reporting by Axios, the framework would have seen each side ease its own blockade — Iran reopening the strait, Washington lifting its port blockade — in a sequence spread over about a week.
Trump rejected the terms on Saturday, telling Axios that Tehran was in a rush to open the strait because it was losing the confrontation, and that what Iran was offering resembled a deal Washington might have accepted a year ago. \”They overplayed their hand,\” he said. \”They want to make a deal, but it is not the deal that I want to make. It is what we would have maybe agreed to a year ago.\” He added that he still expected US negotiators to hold more talks with Iran this week through Qatari mediators.
Iran, for its part, has not softened its position. Araghchi said on Sunday that Tehran\’s conditions for reopening the strait remained unchanged and that only a negotiated solution could resolve the impasse. Analysts noted that markets read the rejection as \”the door remains open, but not on these terms\” rather than a collapse of diplomacy — which is why the crude oil price rose without the kind of panic spike that would signal traders believed talks were dead. \”We don\’t think this changes things much,\” Suvro Sarkar, head of energy research at DBS Bank, told Bloomberg.
The Fed\’s first rate hike since 2023 piles on the pressure
The crude oil price story was only half of it. On September 16, the US Federal Reserve raised its benchmark interest rate by a quarter point to a range of 3.75 to 4.00 per cent — its first increase since July 2023 — in a unanimous 12-0 vote. Chair Kevin Warsh framed the move as removing \”a dose of accommodation,\” saying underlying inflation had not meaningfully improved.
The more consequential signal was what came with the hike. The Fed\’s updated projections showed 16 of 18 officials expecting at least one more increase before the end of 2026, with the median projection putting the benchmark at 4.1 per cent by December. Normally, higher US rates would cool the crude oil price by strengthening the dollar and dampening demand — but the Hormuz supply shock is overpowering that textbook effect. For emerging markets, that means the dollar stays strong and foreign investors keep demanding higher returns to hold riskier assets — a direct headwind for Indian equities and the rupee.
There was a partial relief valve. On September 29, New York Fed president John Williams said one more hike \”late this year\” may be appropriate but stressed there was \”no urgency,\” prompting markets to cut the odds of an October move to about 50 per cent. Even so, the direction of global monetary policy has clearly turned: South Korea and the Philippines raised rates in August, followed by the US, Japan, the euro area and New Zealand in September.
Why the twin shock hurts India: oil, rupee and rates
India\’s exposure runs through three channels, and all three are flashing amber. First, energy: with crude import dependence near 90 per cent of consumption, every $10 rise in the crude oil price widens the import bill, weakens the rupee and feeds into transport and food costs. The rupee has already weakened about 6 per cent against the dollar this year, and a stubbornly high crude oil price makes the Reserve Bank of India\’s inflation fight that much harder.
Second, financial conditions: higher US rates pull foreign money out of emerging markets and raise borrowing costs globally. Indian equities sold off sharply on the Monday after Trump\’s rejection of the Hormuz proposal, with the selling spread across large, mid and small caps — the classic signature of a broad risk-off move rather than sector-specific worry.
Third, inflation: the UN Food and Agriculture Organization\’s food price index climbed to 136.0 points in September, its highest in nearly four years, as wheat, maize and sugar prices jumped. That lands awkwardly for India, where retail inflation had already accelerated to 4.82 per cent in August — above the RBI\’s 4 per cent target for the third straight month — just as the central bank\’s rate-setting panel meets from October 5 to 7.
\”The stress in the global markets is already visible, so fuel prices have risen. All of these issues are real, they are not in the future.\”
Neelkanth Mishra, Executive Director, World Bank Group, speaking in New Delhi on October 3
Mishra, who is also the chairperson of UIDAI, said that with the crude oil price elevated and global bond yields climbing, India was better placed than several developed economies but \”not insulated,\” warning against mechanically linking Indian interest-rate policy to moves by the US Federal Reserve. \”This linkage between global rates and Indian rates is something that I do not think is appropriate,\” he said. Moody\’s Analytics struck a similar note, warning the global economy was tipping toward a sharp slowdown and that India could \”lose a step\” alongside it as external demand weakens and energy costs rise.
What to watch next
Three near-term triggers will decide whether the crude oil price pushes higher or cools. The first is diplomacy: Qatari-mediated contacts between Washington and Tehran are expected this week, and any hint of a revived framework for the strait would pull the crude oil price back quickly. The second is the RBI\’s policy decision on October 7 — economists widely expect the central bank to begin its own rate-hike cycle, which would be its first increase since February 2023. The third is the Fed\’s next meeting on October 27-28, where markets are split roughly evenly on another move.
For Indian readers, the practical takeaways are straightforward: fill fuel tanks before further revisions if prices keep climbing, expect the RBI\’s October policy decision to set the tone for loan and deposit rates into 2027, and brace for continued volatility in equity markets while oil and global rates move together. Read our world news section for continuing coverage.
Frequently Asked Questions
Why did the crude oil price rise this week?
The crude oil price rose after US President Donald Trump rejected Iran\’s proposal to reopen the Strait of Hormuz within seven days. With roughly a fifth of the world\’s oil normally flowing through the strait, the rejection renewed fears of prolonged supply disruption, pushing Brent crude back toward $107 a barrel on September 28.
What is the Strait of Hormuz dispute about?
The Strait of Hormuz connects the Persian Gulf to the open ocean. Iran has restricted traffic through it during its confrontation with the United States. Tehran offered to reopen it for an end to the US naval blockade, lifted oil sanctions and a ceasefire; Washington rejected those terms on September 26, lifting the crude oil price.
How does the US Fed rate hike affect India?
When the Federal Reserve raises rates — it moved to 3.75-4.00 per cent on September 16, its first hike since 2023 — the dollar strengthens and foreign investors pull money from emerging markets. That pressures the rupee, raises India\’s import costs and can push the RBI toward raising its own rates to defend the currency and contain inflation.
Will petrol and diesel prices rise in India?
Retail fuel prices in India are revised based on international crude benchmarks and the rupee-dollar rate. With Brent near $107 and the rupee about 6 per cent weaker this year, upward pressure on pump prices is building, though the timing of any revision depends on oil marketing companies and government tax policy.
What happens next in the oil market?
Watch three triggers: Qatari-mediated US-Iran contacts expected this week, the RBI\’s rate decision on October 7, and the Fed\’s October 27-28 meeting. A diplomatic breakthrough on the strait would cool prices fast; escalation or further OPEC-adjacent disruption would push Brent higher and deepen the squeeze on oil-importing economies like India.
For more on global markets, visit our homepage and read the full report on the oil price surge.
