Strait of Hormuz: Impact of US-Israel strike on Iran

US-Israel Strikes on Iran: How Would Closure of the Strait of Hormuz Impact the World and India? Read here to understand the geopolitical implications.

Rising tensions in West Asia following strikes by the United States and Israel on Iran, and Tehran’s retaliation, have revived global concerns about the Strait of Hormuz, one of the most critical energy chokepoints in the world.

For energy-import dependent countries like India, any disruption in this narrow passage could have immediate economic implications.

Read: Crisis in Iran

Significance of the Strait of Hormuz

The Strait of Hormuz is a narrow maritime passage located at the entrance of the Persian Gulf:

• Iran lies to the north.
• The UAE and Oman lie to the south.
• It stretches about 100 miles.
• At its narrowest, it is only 21 miles wide.
• Shallow waters make vessels vulnerable to naval mines.

Global Energy Significance

• Handles 20-25% of the global crude oil supply.
• Over 20 million barrels per day (mbpd) transit through it.
• Key exporters dependent on Hormuz:
  • Saudi Arabia
  • Iran
  • United Arab Emirates
  • Kuwait
  • Iraq

A disruption would therefore not be regional; it would be global.

Can Iran Close the Strait?

While Iran has previously threatened closure, experts consider a prolonged full blockade a low-probability scenario because:

• Iran’s own crude exports rely on the Strait.
• Closure would trigger international military escalation.
• It would severely damage Iran’s economy.

However, even without formal closure:

• Naval exercises
• Mining threats
• Radio warnings to ships
• Higher war-risk insurance

could disrupt shipping and raise global oil prices.

Immediate Global Impact of Closure

1. Spike in Crude Oil Prices

Even perceived risk creates a geopolitical premium on Brent crude.

• Prices could surge sharply.
• Speculative trading would amplify volatility.
• Freight and insurance costs would rise.

This would impact:

• Inflation worldwide.
• Trade deficits of oil-importing nations.
• Global financial markets.

2. Supply Chain Disruptions

Asian economies, China, Japan, South Korea, and India, are heavily dependent on Gulf crude.

Alternative routes exist but are limited:

• Saudi Arabia’s East-West pipeline to the Red Sea.
• UAE’s pipeline to Fujairah.

These alternatives cannot fully replace Hormuz’s capacity.

3. Impact on the Global Economy

• Higher fuel costs increase transport and production costs.
• Inflationary pressures rise.
• Central banks may delay rate cuts.
• Stock markets could correct sharply.

Energy shock and geopolitical tension will lead to global economic instability.

India’s Exposure to the Strait of Hormuz

India imports around 90% of its crude oil needs.

According to analytics data:

• Around 2.5-2.7 mbpd of India’s crude imports transit via Hormuz.
• That accounts for roughly 50% of India’s crude imports.
• Major suppliers: Iraq, Saudi Arabia, UAE, Kuwait.

Recently, India has pivoted back toward Middle Eastern crude after reducing some Russian imports, increasing short-term exposure.

What Would Be the Impact on India?

1. Price Impact

Experts believe the first impact would be price-driven, not volume-driven.

• Brent crude prices rise.
• Freight charges increase.
• War-risk insurance premiums surge.
• Landed crude cost rises.

Consequences:

• Higher import bill.
• Pressure on Current Account Deficit (CAD).
• Rupee depreciation risks.
• Inflationary pressures.

2. Supply Shock (Lower Probability)

A prolonged blockade could cause:

• Physical shortages.
• Refinery disruptions.
• Rationing scenarios (extreme case).

However, most analysts consider sustained supply loss unlikely.

India’s Buffers Against Disruption

1. Diversification of Oil Sources

India imports crude from more than 40 countries, including:

• Russia
• United States
• West Africa
• Latin America

However:

• Atlantic Basin crude takes 25-45 days of shipping time.
• Gulf crude arrives in 5-7 days.
• Freight cost is significantly higher for longer routes.

Thus, diversification ensures continuity but increases costs.

2. Russian Crude as a Backup

After Western sanctions on Russian firms like Rosneft and Lukoil, Indian imports from Russia declined.

However:

• Russian cargoes remain available in the Indian Ocean.
• Floating storage provides near-term flexibility.
• Indian refiners can pivot quickly if needed.

This provides commercial elasticity.

3. Strategic Petroleum Reserves (SPR)

India maintains Strategic Petroleum Reserves for emergency use.

In extreme disruption:

• SPR can be deployed.
• Refiners maintain operational stocks.
• Depots and ports hold product inventories (diesel, petrol, ATF, LPG).

Thus, near-term structural supply insecurity is limited.

Will Fuel Prices Rise Immediately?

Although fuel pricing in India is deregulated:

• Oil Marketing Companies (OMCs) usually respond to sustained price trends.
• Short-term volatility may not trigger immediate retail hikes.
• The government may intervene to manage inflationary risks.

Hence, the principal vulnerability is macroeconomic, not an immediate pump price shock.

Global Strategic Implications

1. Militarisation of Sea Lanes

A Hormuz crisis could:

• Increase US naval presence.
• Escalate regional tensions.
• Trigger proxy conflicts.

2. Shift in Energy Trade Patterns

Countries may:

• Accelerate energy diversification.
• Increase renewable energy investment.
• Strengthen alternative pipeline routes.

3. Strategic Realignments

Energy-importing nations may:

• Deepen ties with alternative suppliers.
• Reassess West Asia foreign policy balances.

Conclusion

The Strait of Hormuz remains the world’s most critical oil chokepoint. While a sustained closure is improbable, even temporary disruptions can significantly impact global oil markets. For India, the immediate risk lies in higher crude prices and macroeconomic pressure rather than structural supply insecurity.

India’s diversification strategy, Russian crude flexibility, and Strategic Petroleum Reserves provide buffers. However, Middle Eastern crude retains logistical advantages and remains central to India’s energy stability.

In an interconnected energy market, geopolitical tensions in West Asia quickly translate into global economic consequences, underscoring the strategic importance of maritime security and energy diversification.

Read: Iran-Israel relations

UPSC Mains Practice Question

“Energy chokepoints like the Strait of Hormuz pose significant risks to global economic stability.” Discuss with reference to India’s energy security.