What the Rising Tensions in the Strait of Hormuz Mean for Global Oil Prices

The ongoing tensions between the US and Iran have raised alarms about the potential closure of the Strait of Hormuz, a critical passage for global oil and gas supplies. With India relying heavily on this route for its crude oil imports, experts suggest that while alternative sources exist, any disruption could lead to significant price increases. This article delves into the geographical importance of the Strait, the implications of potential closures, and how India is adapting its energy sourcing strategies in response to these geopolitical challenges.
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What the Rising Tensions in the Strait of Hormuz Mean for Global Oil Prices

Concerns Rise Over Strait of Hormuz Amid US-Iran Tensions


New Delhi: Recent US military actions targeting Iran's key nuclear sites have reignited fears that Tehran may attempt to close the Strait of Hormuz, a vital passageway for global oil and gas shipments.


For India, the Strait is crucial, with approximately 2 million barrels per day (bpd) of its total 5.5 million bpd oil imports passing through this narrow channel. However, experts suggest that India has diversified its oil sources sufficiently to mitigate potential disruptions, with alternatives from Russia, the US, and Brazil readily available.


Russian oil, for instance, is transported through routes that bypass the Strait, such as the Suez Canal and the Pacific Ocean. Although oil from the US, West Africa, and Latin America is more expensive, these options are becoming increasingly feasible.


Regarding natural gas, India's primary supplier, Qatar, does not rely on the Strait for its shipments. Other sources of liquefied natural gas (LNG) from Australia, Russia, and the US would remain unaffected by any closure.


Nevertheless, the escalating tensions in this critical energy corridor could lead to short-term price increases, with analysts predicting oil prices might rise to USD 80 per barrel.


India's dependence on imports for 90% of its crude oil and about half of its natural gas means that any disruption could have significant implications. Crude oil is essential for producing fuels like petrol and diesel, while natural gas is vital for electricity generation, fertilizer production, and domestic cooking.


Factbox: The Strait of Hormuz and Energy Dynamics


GEOGRAPHY: The Strait of Hormuz links the Persian Gulf to the Arabian Sea and the Indian Ocean. This narrow channel, about 21 miles (33 kilometers) wide at its narrowest point, separates Iran from the Arabian Peninsula. The shipping lanes are even narrower, just two miles wide in each direction, making them susceptible to threats.


LIFEBLOOD OF GLOBAL OIL & GAS: The Strait is strategically and economically vital, as oil tankers from various Persian Gulf ports must navigate through it. In 2024, daily shipments averaged 20.3 million barrels of oil and 290 million cubic meters of LNG, according to the US Energy Information Administration (EIA).


Historically, disruptions in energy flows have primarily affected the West, but now, Asia, particularly China and India, would face the most significant consequences of any closure.


In 2022, 82% of crude oil and condensate exports through the Strait were destined for Asia, with India, China, Japan, and South Korea accounting for 67% of total flows.


India imports around 90% of its crude oil, with over 40% coming from Middle Eastern countries that rely on the Strait for exports.


The EIA reported that in the first quarter of 2025, China imported 5.4 million bpd of crude through the Strait, while India imported 2.1 million bpd.


The International Energy Agency (IEA) has warned that any disruption in the Strait would have serious repercussions for global oil markets.


THREATS OF CLOSURE: Although Iran has threatened to close the Strait, it has never followed through. Recent calls from Iranian leaders to disrupt oil transit in response to US actions have surfaced, but historical context shows that the Strait has remained open even during conflicts.


During the Iran-Iraq war, both nations targeted commercial vessels, yet the Strait was never fully closed. In 2011 and 2012, Iranian officials warned of potential closures in response to sanctions, and similar threats were made in 2018 and 2019 amid rising tensions.


IS CLOSURE POSSIBLE? Experts believe a prolonged closure of the Strait is unlikely due to the US naval presence. Such an action would not only harm exports from Saudi Arabia, the UAE, Kuwait, and Qatar but would also negatively impact Iran's own oil exports.


While Iranian hardliners have made threats, analysis suggests a full blockade is improbable due to the significant economic repercussions for Iran. China, as Iran's largest oil customer, would be directly affected, as would Iran's own economy, which heavily relies on exports through the Strait.


A closure would likely provoke international military responses, and any Iranian naval buildup would be detected, prompting preemptive actions from the US and allies.


At most, Iran might engage in short-term sabotage efforts that could disrupt flows temporarily, but a complete shutdown is deemed unlikely.


Despite ongoing threats, Iran has historically refrained from closing the Strait due to the associated strategic and economic costs, using the threat instead as a diplomatic tool.


PRICES: Following Israel's military actions against Iranian targets, global oil prices surged, reflecting heightened geopolitical risks. Brent crude prices have risen to USD 77 per barrel, with analysts warning they could exceed USD 90 if tensions escalate further.


IMPACT ON INDIA: India sources about 40% of its oil from Middle Eastern countries, with significant volumes transiting through the Strait. However, Russia has become a key supplier, with imports from Moscow surpassing those from the Middle East recently.


In June, Indian refiners imported 2-2.2 million bpd of Russian crude, the highest in two years, while imports from the US also saw a significant increase. Although current supplies remain stable, there are indications of a potential decline in crude loadings from the Middle East, prompting Indian refiners to adapt their sourcing strategies.


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