Iran-Israel war: Tehran moves to shut Strait of Hormuz after US strikes. How will it impact India? | Explained
Following US strikes on Iran's nuclear sites, Iran's parliament has authorised the potential closure of the Strait of Hormuz, a vital global oil passage. This could significantly disrupt oil supplies, impacting countries like India, which relies heavily on this route for its energy imports.
Iran-Israel war: Following the US strikes at Iran's three nuclear sites - Natanz, Isfahan and Fordow - the Islamic Republic's parliament has called for the closure of the Strait of Hormuz. However, its Supreme National Security Council will take the final decision. Such a move could be unprecedented as the Islamic Republic has not done it before in any war or conflict.
“I encourage the Chinese government in Beijing to call them about that, because they heavily depend on the Straits of Hormuz for their oil. If they do that, it will be another terrible mistake. It’s economic suicide for them if they do it,” US Secretary of State Marco Rubio said, according to Fox News.
What is the Strait of Hormuz?
The Strait of Hormuz, located between the Persian Gulf and the Gulf of Oman, is the only maritime passage from the Persian Gulf to the open ocean. It is considered one of the world’s most strategically vital choke points, serving as the main export route for key Gulf oil producers, including Saudi Arabia, the United Arab Emirates, Iraq and Kuwait.
It permits nearly 20 per cent of the world’s daily oil consumption, around 20 million barrels, to pass through it. At its narrowest point, the Strait is only 33 kilometres wide, with the shipping lanes in each direction measuring just 3 kilometres across.
As per media reports, nearly 50 large oil tankers are currently attempting to exit the Strait of Hormuz. Iran’s renewed threats in response to recent US strikes have intensified fears about the extent to which a conflict in the Gulf region could disrupt the global oil supply.
Significance of the Strait of Hormuz
US Energy Information Administration (EIA) believes “flows through the Strait of Hormuz in 2024 and the first quarter of 2025 made up more than one-quarter of total global seaborne oil trade and about one-fifth of global oil and petroleum product consumption”. In addition, around one-fifth of global liquefied natural gas trade also transited the Strait of Hormuz in 2024, primarily from Qatar.
Due to its strategic geographic location, there is no alternative sea route to the Strait of Hormuz. As a result, any disruption to shipping through the strait would have significant consequences for the global oil and LNG trade, likely causing prices to surge. Since oil prices influence a wide range of goods and commodities, such fluctuations would have a ripple effect across the global economy.
If the Strait of Hormuz closes, what could this mean for India?
“84% of the crude oil and condensate and 83% of the liquefied natural gas that moved through the Strait of Hormuz went to Asian markets in 2024. China, India, Japan and South Korea were the top destinations for crude oil moving through the Strait of Hormuz to Asia, accounting for a combined 69% of all Hormuz crude oil and condensate flows in 2024,” EIA said.
More than two-thirds of India’s oil imports and nearly half of its liquefied natural gas (LNG) imports pass through the Strait of Hormuz. Out of the 5.5 million barrels of oil India consumes daily, approximately 1.5 million are transported via this crucial waterway.
Foreign Affairs Expert Robinder Sachdev informed news agency ANI, “If Iran closes the Strait of Hormuz, India will definitely suffer. About 20 per cent of the world's crude oil and 25 per cent of the world's natural gas flow through these.” He added that India will face challenges as rising oil prices lead to higher inflation. It is estimated that for every $10 increase in crude oil prices, India’s GDP could be affected by 0.5 per cent.
‘More and more oil is coming’
Meanwhile, the Minister of Petroleum and Natural Gas of India, Hardeep Singh Puri, is confident that there is enough oil in the global market. “The oil price for a long time was between 65 and 70 (USD per barrel). Then it was between 70 and 75. Today is a Sunday. When the markets open tomorrow, the consequences of the closure of the Strait of Hormuz will be factored in. But as I've been saying for a long time, enough oil is available in the global markets,” ANI quoted Puri as saying.
He added, “More and more oil is coming on the global markets, particularly from the Western Hemisphere. Even traditional suppliers would be interested in keeping the supplies because they also need revenue. So hopefully the market will factor that in.”
Brent Oil Price Forecast
In a statement to LiveMint.com, Madhavi Arora, Chief Economist, Emkay Global Financial Services said, “We have $70/bbl Brent assumption for FY26 with Q1FY26 likely to average at $67-69/bbl. However, with OPEC+ announcing another higher than expected production hike in July, fundamentally oil markets remain well supplied and further Iranian supply cuts can be accommodated.”
She further said, “As of now, we are not changing our forecasts and continue to see CPI inflation undershooting RBI’s estimate of 3.7% to average much lower 3.3-3.4%* in FY26. We note that every $10/bl increase in oil leads to an annualised gain of 35 bps in CPI inflation. ”
“We maintain FY26E CAD/GDP at 0.8%, at Brent 70/bbl, with every 10$/bbl leading to upside risk of 0.4-0.5%, ceteris paribus Our FY26 Growth est at 6.0% could see a downside risk of 16-20bps if oil averages $80/bl through the year vs $70/bl assumed,” Arora asserted.