Strait of Hormuz oil flows dry up: How this affects India, and the options ahead

Source: The post “Strait of Hormuz oil flows dry up: How this affects India, and the options ahead” has been created, based on “Strait of Hormuz oil flows dry up: How this affects India, and the options ahead” published in “Indian Express” on  02nd March 2026.

UPSC Syllabus: GS Paper-2- International Relations

The recent escalation of conflict involving Iran, United States and Israel has severely disrupted energy flows through the Strait of Hormuz, the world’s most critical oil transit chokepoint. Since India depends heavily on energy imports routed through this passage, any disruption has significant economic and strategic implications.

Importance of the Strait of Hormuz

1. The Strait of Hormuz connects the Persian Gulf with the Gulf of Oman and the Arabian Sea.
2. It handles nearly one-fifth of global liquid petroleum consumption and a large share of global LNG trade.
3. Approximately 15 million barrels of crude oil pass through the strait every day.
4. Even if alternative pipelines are fully utilised, around 9% of global oil demand would remain structurally at risk if the strait is closed.

Impact on India

I. Oil Imports

1. Around half of India’s crude oil imports, roughly 2.5–2.7 million barrels per day, pass through the strait.
2. India is the world’s third-largest oil consumer and imports more than 88% of its crude requirement.
3. A disruption would increase oil prices, and every $1 per barrel increase could raise India’s annual import bill by $1.8–2 billion.
4. Although India has crude inventories of over 10 days and some fuel stocks, sustained disruption would increase economic pressure.

II. LPG and LNG Vulnerability

1. India imports 80–85% of its LPG needs, mostly from Gulf countries via Hormuz.
2. India does not maintain strategic LPG reserves at the same scale as crude oil reserves.
3. Around 60% of India’s LNG imports also transit through the strait.
4. Unlike crude oil, LPG and LNG have limited spot market availability, making them more vulnerable during prolonged disruption.

Likely Price and Market Impact

1. Brent crude prices have already risen sharply due to geopolitical tensions.
2. In the event of prolonged disruption, oil prices could rise above $100 per barrel.
3. Even a short-term closure of one to two weeks could create tanker congestion and logistical backlogs lasting several weeks.
4. However, experts believe a complete and prolonged blockade is unlikely due to international military presence and global economic consequences.

India’s Near-Term Options

1. India can draw from its strategic petroleum reserves to cushion short-term supply shocks.
2. Indian refiners can accelerate spot purchases from non-Hormuz regions.
3. India can increase sourcing from countries such as Russia, the United States, West Africa, and Latin America.
4. The availability of Russian cargoes in floating storage in the Indian Ocean region provides additional flexibility.
5. Diversification of supply sources reduces the risk of a sustained supply crisis.

Challenges

1. India’s high import dependence makes it structurally vulnerable to external shocks.
2. LPG and LNG imports have thinner structural buffers compared to crude oil.
3. Rising oil prices would increase inflation and widen the current account deficit.
4. Prolonged geopolitical instability in West Asia could disrupt supply chains beyond energy.
5. Shipping insurance costs and war-risk premiums would further increase import costs.

Way Forward

1. India must further diversify its crude and gas import sources to reduce dependence on any single transit route.
2. The country should expand its strategic petroleum reserves and explore creating strategic LPG storage capacity.
3. Long-term contracts with alternative suppliers should be strengthened to ensure energy security.
4. India must accelerate the transition towards renewable energy and domestic energy production to reduce import dependence.
5. Diplomatic engagement with Gulf countries and major powers should be strengthened to ensure stability in critical maritime routes.
6. Energy efficiency measures and demand management strategies should be promoted to reduce vulnerability to price shocks.

Conclusion: The disruption in the Strait of Hormuz highlights the fragility of global energy supply chains and India’s dependence on external energy sources. While India has short-term buffers and diversified sourcing options, prolonged disruption would strain the economy. Strengthening energy security through diversification, strategic reserves, and clean energy transition is essential for safeguarding India’s long-term economic stability.

Question: Discuss how disruptions in West Asian conflicts involving Iran, United States, and Israel can impact India’s economy.

Source: Indian Express