Strait of Hormuz Crisis Raises Global Energy and Economic Concerns; Implications for India

Growing fears over the potential closure of the Strait of Hormuz—one of the world’s most critical oil transit chokepoints—have triggered fresh concerns about global energy security and economic stability amid the escalating conflict involving United States, Israel and Iran.

Oil Prices Surge Amid War Tensions

Global oil markets have reacted sharply to the intensifying conflict. The price of Brent crude oil—the international benchmark—briefly surged to $119.50 per barrel before easing to around $107.80 per barrel later in the day.

The spike reflects growing concerns that the war, now entering its second week, could disrupt oil production and shipping routes across the Middle East, a region that plays a central role in global energy supply.

Prices moderated somewhat after the Financial Times reported that members of the Group of Seven (G7) industrialised nations were considering releasing oil from their strategic reserves to stabilise markets. The report, citing sources familiar with the discussions, remains unconfirmed.

Meanwhile, Donald Trump downplayed the need to tap into America’s Strategic Petroleum Reserve, stating that U.S. supplies remain sufficient and expressing confidence that oil prices would soon decline.

A Vital Global Oil Chokepoint

According to energy research firm Rystad Energy, roughly 15 million barrels of crude oil—about 20% of the world’s daily supply—pass through the Strait of Hormuz every day.

The narrow waterway, bordered by Iran to the north, serves as a crucial export route for oil and gas produced in Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, United Arab Emirates and Iran.

However, threats of Iranian missile and drone attacks have significantly reduced tanker traffic through the strait, disrupting the transport of crude oil and liquefied natural gas from the Persian Gulf.

As export routes tighten, countries such as Iraq, Kuwait and the UAE have reportedly reduced oil production as storage facilities fill up due to limited shipping capacity. At the same time, attacks on oil and gas infrastructure by Iran, Israel and the United States have further heightened supply concerns.

Economic Ripple Effects

The surge in oil and natural gas prices is already pushing fuel costs higher globally, with the impact cascading across industries and financial markets.

Asian economies, which depend heavily on energy imports from the Middle East, are particularly vulnerable. The last time Brent crude and U.S. oil futures traded at comparable levels was in 2022, following Russian invasion of Ukraine.

Higher energy prices typically fuel inflation, placing pressure on household budgets and dampening consumer spending, a key driver of economic growth in many major economies.

India’s Strategic Exposure

For India, the Strait of Hormuz remains a critical energy lifeline. The country imports nearly 88% of its crude oil, with 50–60% of those imports passing through the strait from suppliers such as Iraq, Saudi Arabia, the UAE and Kuwait.

Additionally, around 50–60% of India’s liquefied natural gas (LNG) imports and 80–85% of its liquefied petroleum gas (LPG) supplies transit through the same route.

Unlike oil, India maintains relatively limited structural buffers for gas supplies, making the country particularly sensitive to disruptions in LNG shipments.

Economists estimate that every $1 increase in crude oil prices adds roughly $2 billion to India’s annual import bill. A $10 rise in oil prices could potentially reduce India’s GDP by around 0.5%, according to analysts.

Can India Withstand a Prolonged Disruption?

Despite these vulnerabilities, officials say India currently holds approximately 100 million barrels of crude oil in strategic and commercial reserves, enough to meet demand for about 25 days.

Authorities also believe that global supply measures—such as potential releases from G7 strategic reserves—could help stabilise markets and prevent prolonged shortages.

India is also expected to diversify supply sources if disruptions intensify. Analysts note that New Delhi could increase imports of discounted crude from Russia, while also expanding purchases from the United States, West Africa and Latin America.

Some reports suggest that Iran may allow passage through the Strait of Hormuz for countries not aligned with the U.S. or Israel—an arrangement that could potentially provide a logistical workaround for Indian tankers.

Broader Strategic Risks

Beyond oil and gas, the crisis could also affect other critical sectors. The Persian Gulf region is a major global supplier of urea and ammonia, raising concerns that a prolonged disruption could trigger a “fertiliser shock”.

Key Indian exports—including tea and diamonds—could face rising shipping and insurance costs if maritime risks increase in the region.

In addition, several vital undersea communication cables, including SMW4 and FALCON, pass near the conflict zone. Security concerns have already delayed maintenance operations, raising potential risks for India’s digital connectivity and international communications infrastructure.

As tensions continue to escalate in the region, policymakers and markets worldwide remain closely watchful of developments around the Strait of Hormuz—an energy corridor whose disruption could have far-reaching consequences for the global economy.