SUMMARY

The potential closure of the Strait of Hormuz, as reportedly approved by Iran's parliament, could significantly impact India's oil supply, though mitigation strategies and diversified import sources may cushion the blow.

The Strait of Hormuz is a critical chokepoint through which approximately 20% of global oil and 25% of liquefied natural gas (LNG) flows, including about 40% of India’s crude oil imports (roughly 2 million barrels per day out of 5.5 million bpd) and over 50% of its LNG imports. A closure would disrupt shipments from key Gulf producers like Saudi Arabia, Iraq, the UAE, Kuwait, and Qatar, which are major suppliers for India.

Potential Impacts on India

1. Supply Disruptions: India imports 90% of its crude oil, with over 40% transiting through the Strait. A blockade could disrupt this supply, affecting refinery operations and fuel availability. Similarly, Qatar, which supplies about 80% of India’s LNG, relies on the Strait, and disruptions could impact electricity generation, fertilizer production, and CNG supply.
2. Price Spikes: Analysts predict oil prices could rise to $80-$120 per barrel or higher with a prolonged closure, increasing fuel costs and triggering inflation in India. This would raise costs for consumers and industries, impacting economic stability.
3. Trade and Economic Ripple Effects: About 5-6% of India’s exports to West Asia could be affected, particularly to Iraq, if the Strait is blocked. Higher shipping and insurance costs due to rerouting or risk premiums would further strain trade.

Mitigating Factors

1. Diversified Sources: India has reduced its reliance on Gulf oil by diversifying imports, with nearly 40% of its crude coming from Russia in 2023, which uses routes like the Suez Canal, Cape of Good Hope, or the Pacific Ocean, bypassing the Strait. LNG from Australia, the US, and Russia would also remain unaffected.
2. Strategic Reserves: India maintains oil reserves for about 74 days, including inventories held by Indian Oil Corporation, Bharat Petroleum, Hindustan Petroleum, and the Indian Strategic Petroleum Reserves Ltd. This buffer could help manage short-term disruptions.
3. Alternative Routes: Some exports to West Asia can use ports like Fujairah (UAE) or Salalah (Oman) to avoid the Strait, though capacity constraints exist. Saudi Arabia and the UAE have limited pipeline capacity (about 2.6 million bpd) to bypass the Strait, but this is insufficient to offset a full closure.
4. Diplomatic and Strategic Measures: India’s strong ties with both Iran and Israel, along with its Hormuz Peace Initiative in 2019, demonstrate its ability to navigate regional tensions. The government is actively monitoring the situation and exploring alternatives.
5. Likelihood of Closure: While Iran’s parliament has approved the measure, the final decision rests with Iran’s Supreme National Security Council. Experts suggest a full closure is unlikely due to Iran’s own reliance on the Strait for 96% of its oil exports, primarily to China, and the risk of provoking a military response from the US and its allies, given the presence of the US Fifth Fleet in Bahrain. Past threats (e.g., 2011, 2018, 2019) have not materialized into a blockade, suggesting this may be more political posturing than an imminent action.

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