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The closure of the Strait of Hormuz by Iran escalates tensions, disrupts global oil supply, and poses significant challenges to India's energy security and economic stability.

With Strait of Hormuz closed, Saudi Aramco refinery hit (reportedly by the debris from an intercepted Iranian missile), the oil market supply chain situation seems to spiraling out of control. A video show smoke rising from a refinery operated by Saudi Aramco after a fire broke out, which Saudi officials say was caused by debris from an intercepted Iranian missile. Ras Tanura, located in the Eastern Province of Saudi Arabia, is operated by Saudi Aramco and stands as one of the world’s largest and most significant oil export terminals. The facility is integral to both crude oil production and refining operations, with a refinery reportedly capable of processing over 550,000 barrels of crude oil per day.

The closure of the Strait of Hormuz by Iran is sending shockwaves across global energy markets, with Asia expected to face the maximum pain. A commander in Iran’s Revolutionary Guard Corps (IRGC) said on Monday that the strait was “closed” and that any vessel attempting to pass through the waterway would be set ‘ablaze’ Iranian media reported. At least five tankers have been damaged, two personnel killed and about 150 ships stranded around the strait, which separates Iran and Oman.

The specter of a shutdown of the Strait of Hormuz the world’s most critical oil transit corridor has sent tremors through global energy markets, with India’s energy security now under intense scrutiny. As tensions between Iran, the United States and Israel escalate, fears of a disruption in the narrow sea passage connecting the Persian Gulf to the Arabian Sea have deepened. Iran’s Islamic Revolutionary Guard Corps (IRGC) transmitted messages to vessels claiming the strait had been closed, though there has been no formal confirmation from Tehran. Regardless of the official status, insurers, trading houses and ship operators have already suspended or delayed shipments, with hundreds of tankers reportedly anchored in Gulf waters.

Why Hormuz Matters So Much

The Strait of Hormuz is a 33-kilometre-wide maritime corridor through which nearly one-fifth of global oil trade and a significant portion of global LNG supplies pass. Around 15 million barrels of crude oil move through it every day. For India, the stakes are enormous. Nearly half of India’s crude oil imports roughly 2.5 to 2.7 million barrels per day transit through Hormuz from Iraq, Saudi Arabia, the UAE and Kuwait. India imports close to 88% of its crude oil needs, making it the world’s third-largest oil importer. Qatar’s LNG shipments to India also pass through the same corridor, increasing vulnerability in the gas segment.

Immediate Impact: Prices Before Shortages

Experts suggest that the first shock would likely be price-related rather than a physical supply crunch. Benchmark Brent crude surged past $82 per barrel in early Asian trade before easing slightly, reflecting a rising “war premium.” Every $1 per barrel increase in crude prices could inflate India’s annual oil import bill by an estimated $1.8–2 billion. If the conflict deepens and disruption persists, analysts warn crude prices could test $100 per barrel. Higher global prices would widen India’s trade deficit, strain the rupee and potentially push up domestic petrol, diesel and LPG prices.

How Long Can India’s Oil Last?

According to estimates India currently holds around 100 million barrels of commercial crude oil in storage tanks, underground strategic petroleum reserves and cargo already enroute to ports. According to available information, this stockpile can meet national demand for approximately 40–45 days. Indian refiners also maintain over 10 days of crude inventory and about a week’s worth of fuel stocks. These reserves provide critical breathing space in case of short-term disruption. However, experts caution that while crude oil supplies may be manageable in the near term, liquefied petroleum gas (LPG) and liquefied natural gas (LNG) present a bigger vulnerability. India imports 80–85% of its LPG needs, with most shipments passing through Hormuz. Unlike crude, India does not maintain large strategic reserves of LPG. Nearly 60% of LNG imports also transit the strait, and global spot availability for LPG and LNG is relatively thin.

India’s Backup Plan; According to sources to cushion the impact, India has several strategic options at its disposal:

•          Strategic Petroleum Reserves (SPR): These can be tapped to stabilize supply temporarily.

•          Diversified sourcing: Increased procurement from Russia, the US, West Africa and Latin America.

•          Floating Russian cargoes: There is reported availability of Russian crude in the Indian Ocean and Arabian Sea region, offering flexibility if Middle Eastern flows falter.

•          Spot market purchases: Accelerated buying from non-Hormuz regions.

In a scenario where Middle Eastern imports face constraints, Indian refiners could pivot back to Russian cargoes relatively quickly. This diversification strategy reduces the risk of a sustained supply crisis.

Will the Closure Last?

Although Iran has threatened to shut Hormuz in the past, it has never fully done so. Analysts believe that even if a blockade occurs, it is likely to be temporary potentially lasting one to two weeks given the geopolitical consequences and the heavy reliance of Gulf producers, including Iran itself, on uninterrupted exports. However, even a brief disruption could create logistical chaos. Tanker congestion, cargo rescheduling and port delays may take weeks to normalize, extending the market impact well beyond the reopening of shipping lanes.

 The Bigger Economic Picture

As tensions rise in West Asia and uncertainty lingers over maritime traffic, India’s energy security remains closely tied to developments in Hormuz. While existing reserves offer short-term comfort, prolonged instability would test supply resilience, fiscal balance and inflation management. For now, India’s diversified sourcing strategy and stockpile provide a buffer. But in a world where a narrow waterway thousands of kilometers away determines fuel prices at home, the Strait of Hormuz remains not just a geopolitical flashpoint but a lifeline for India’s energy future.

The United States and Israel’s war with Iran has spilled over into the Strait of Hormuz, one of the world’s most critical energy chokepoints, prompting a surge in oil prices. Shipping through the strait, which carries one-fifth of the oil consumed globally as well as large quantities of gas, has ground to a near halt amid Iranian attacks on oil tankers in the region. Cormack McGarry, the director of maritime intelligence and security services at Control Risks, (who assists clients with issues such as piracy, war, terrorism, activism, and civil unrest and regularly appears in news media as an expert commentator) said that mariners received a message from Iran via the international distress frequency on Saturday that the strait was closed. ‘Every ship in the area would have heard that… and it was enough for most ships to pause.’ Vessel tracking service Kpler (that unlocks real-time insights across global markets) showed that limited traffic continued in the strait – primarily ships flying the flag of Iran and its major trading partner China – on Sunday.

McGarry said that a total shutdown of the strait by Iran would mean it was “tightening the noose around its own neck”. “If they attack shipping, they are encouraging the Gulf states to join the war, and it’s a big step for Iran to go there,” McGarry said. The idea they could affect a long-term sustained closure of the strait is completely unlikely,” he added. “I’m more worried for regional supply chains.” Still, most commercial operators, major oil companies, and insurers have effectively withdrawn from the corridor, according to Kpler. Insurance premiums had already reached a six-year high ahead of the war.