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How the Strait of Hormuz Crisis Could Hit India’s Energy Future 

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How the Strait of Hormuz Crisis Could Hit India’s Energy Future 

As tensions in the Middle East escalate following direct military action by the US and Israel against Iran, the geopolitical ripple effects are beginning to reach far beyond the region. Chief among them is a growing threat to the Strait of Hormuz — a vital maritime corridor through which nearly a third of global oil and a fifth of the world’s liquefied natural gas (LNG) flows. With the Iranian parliament reportedly considering the closure of this chokepoint, India finds itself in an increasingly vulnerable position. 

The Strait of Hormuz is a strategic artery linking the Persian Gulf with the Gulf of Oman and the Arabian Sea. Narrow and easily disrupted, the Strait has remained open even through past conflicts, largely due to the mutual dependencies of all parties involved — including Iran. However, recent developments have shifted the calculus. The deterrent of U.S. military involvement — historically a key factor keeping Iran restrained — has now been spent to a degree, with American forces already engaged. Iran’s Deputy Chief of Mission has publicly acknowledged that closing the Strait remains “on the table,” depending on how global powers respond in the days ahead. 

This is not just a Middle Eastern issue. More than 80% of the oil that moves through the Strait is destined for Asia, with India, China, Japan, and South Korea consuming nearly 70% of that volume. India, in particular, sources 45-50% of its total crude oil imports from the Gulf countries that rely on the Strait — Iraq, Saudi Arabia, Kuwait, and the UAE. While Russia now supplies around 36% of India’s crude needs, a prolonged closure would severely test the country’s supply resilience and energy diplomacy. 

A full blockade would squeeze supply chains and drive up prices. The mere speculation of disruption has already sent Brent crude prices soaring by over 6% to hover near $81 per barrel. Analysts from ICRA warn that for every $10 rise in oil prices, India’s oil import bill could surge by $13-14 billion, widening the Current Account Deficit (CAD) by an additional 0.3% of GDP. Should average crude prices reach $80-90 per barrel in FY2026, the CAD could hit 1.6% of GDP — up from earlier estimates of 1.2-1.3%. 

The economic fallout won’t stop there. Higher oil prices have a cascading effect on inflation. For every 10% rise in crude, Wholesale Price Index (WPI) inflation could spike by 80-100 basis points, while Consumer Price Index (CPI) inflation could climb by 20-30 bps. For an economy still grappling with price-sensitive consumers and fragile post-pandemic recovery patterns, this could prove destabilising. 

Corporate India won’t be spared either after Israel sparked a crisis with its unprovoked attack almost a week ago. Rising energy costs could compress profit margins across manufacturing, aviation, transport, and FMCG sectors. As ICRA has noted, a sustained oil price surge could warrant a downward revision of India’s GDP growth projections from the expected 6.2% in the current fiscal year. 

The alternatives to the Strait of Hormuz are limited and far from seamless. Saudi Arabia’s East-West pipeline to the Red Sea can carry 5 million barrels per day, and the UAE has a 1.8 million bpd route to Fujairah on the Gulf of Oman. But these capacities combined fall significantly short of the 20 million bpd that flow through Hormuz on a normal day. Additionally, the costs of shipping insurance, rerouting, and maritime security would skyrocket — with the burden ultimately passed on to importing nations like India. 

Strategically, India has diversified its energy suppliers over the years to include Russia, the US, and Africa. However, the volume and logistics still skew heavily towards the Middle East. A long-term disruption would not just be an energy crisis, but a national security concern, challenging India’s macroeconomic stability, currency resilience, and foreign policy positioning. 

The closure of the Strait of Hormuz may still be a hypothetical. But the risks are no longer remote. India must now prepare for a worst-case scenario — through enhanced strategic petroleum reserves, diplomatic backchannels with Gulf nations, and assertive participation in global energy forums. In the great geopolitical chessboard, energy security is the square no country can afford to lose.