Strait of Hormuz closed? India on edge as Hormuz closure can push oil prices higher

The war between the U.S.A. and Israel over Iran has taken a new turn, as Iran has (not officially) closed the ‘Strait of Hormuz.’ Iran’s Islamic Revolutionary Guard Corps (IRGC) issued a dramatic announcement and transmitted messages to vessels saying that the strait had been closed. Iran has not officially confirmed the closure, but continuous radio warnings, heightened military movement, and a sharp reduction in traffic suggest the same. It is reported that at least 150 tankers, including crude and LNG carriers, have anchored in the Strait of Hormuz, not risking crossing it. There was no official declaration to this effect from Tehran. This blockade could affect India and its neighbouring countries, and people might have to pay higher energy prices as a result of the conflict.

The Strait of Hormuz is the world’s most important oil transit chokepoint. It is located between Oman and the UAE on one side and Iran on the other. It is 35 to 60 miles (55 to 95 km) wide and separates Iran (north) from Oman’s Musandam exclave on the Arabian Peninsula (south). It is the only sea channel that links the oil-rich Persian Gulf in the west with the Gulf of Oman and the Arabian Sea in the southeast direction.

The Strait of Hormuz is responsible for 20% exports of liquified natural gas (LNG) and liquified petroleum gas (LPG). It serves as the main route of export from Iran, Iraq, Kuwait, Qatar, and the United Arab Emirates to major Asian countries like China, India, Japan, and South Korea. According to the US Energy Information Administration (EIA), about 20 million barrels of oil, worth about $500bn in annual global energy trade, transited through the Strait of Hormuz each day in 2024.

According to reports, oil barrels, which were sold at $65–72 last Friday, could rise as high as $100–120 per barrel due to the closure of the waterway.

India, moreover, roughly imports 2.5–2.7 million barrels per day (bpd) through the strait, which is around half of India’s total oil exports. India is also the third largest crude-oil importer, with an estimated 85–90% imported from West Asia. India has a reserve of over 10 days. But, if the blockade continues further, oil prices (petrol, diesel, etc.) might significantly rise. The global inflated price will increase India’s import bill and even weaken the Rupee. 

“For India, each $1 increase in crude adds roughly $2 billion to the annual import bill, putting pressure on the trade balance,” JM Financial noted.

An increase in petrol, diesel, and LPG prices would also lead to increased transportation fares, food prices, and manufacturing costs, which will eventually lead to huge inflation in the market. Further, this could make it harder for the Reserve Bank of India to cut interest rates.

A climate and commodities economist at Capital Economics, Hamad Hussain, said, “If crude oil prices were to rise to $100 per barrel and remain at those levels for a while, that could add 0.6-0.7 percent to global inflation. This could slow the pace of monetary easing by major central banks, particularly in emerging markets, where policymakers tend to be more sensitive to swings in commodity prices.”

The inflation-led outcome could even heavily affect the Indian stock market as well. Oil marketing companies, paints, tires, aviation, and chemicals may face margin compression.

India can diversify supplies by increasing imports from Russia, the United States, West Africa, and Latin America. Russian cargoes, including those in floating storage, offer flexibility. This diversified sourcing strategy reduces the risk of a prolonged crude supply crisis, though prices may rise.

Although Iran has often threatened to close the Strait of Hormuz, it has never done so. Gulf energy producers, including Iran itself, rely heavily on uninterrupted exports through the strait for revenue. This mutual dependence reduces the likelihood of a long-term, complete shutdown.