The Hormuz Flashpoint: Why Fresh US-Iran Tensions Matter For India’s Economy

Fresh US military strikes on Iranian targets have pushed the Strait of Hormuz back to the centre of global energy concerns, with oil prices rising as traders fear another disruption to shipping through the narrow Gulf passage. For India, which remains heavily dependent on imported energy, the stakes are particularly high.

The latest escalation follows renewed attacks and counter-attacks involving the US and Iran, raising doubts over whether shipping through Hormuz can return to normal. Brent crude rose close to $79 a barrel on July 9 after the US launched fresh strikes, while the prospect of a prolonged conflict kept a geopolitical risk premium in oil markets. 

Why are Hormuz tensions back?

The Strait of Hormuz lies between Iran and Oman and connects the Persian Gulf to the Gulf of Oman and the Arabian Sea. It has become a flashpoint because Iran has repeatedly indicated that it can disrupt shipping in response to military pressure, sanctions or attacks on its territory.

The present tensions stem from the wider US-Iran confrontation that intensified after US and Israeli strikes on Iran earlier this year. Shipping activity through the strait had already fallen sharply during the conflict. While some vessels have resumed movement, the latest strikes have renewed concerns about attacks on commercial ships, higher insurance costs and possible restrictions on navigation.

Why is this sea route so important?

Hormuz is one of the world’s most important energy chokepoints. Roughly a fifth of global oil and a significant share of liquefied natural gas trade normally move through the waterway. Saudi Arabia, Iraq, the UAE, Kuwait, Qatar and Iran use the route to send oil and gas to Asian markets.

Any prolonged disruption does not merely reduce physical supplies. It also raises freight charges, war-risk insurance premiums and delivery delays. Those costs eventually feed into the price paid by importers such as India.

How much oil does India import through Hormuz?

India imports more than 85 per cent of its crude oil requirement, making it vulnerable to global price shocks. However, New Delhi has tried to reduce its direct dependence on Hormuz by diversifying purchases from Russia, the US, Africa and Latin America.

The government said in March that about 70 per cent of India’s crude imports were being routed outside Hormuz, compared with around 55 per cent earlier. India now sources crude from roughly 40 countries, giving refiners greater flexibility than during earlier Gulf crises. 

The bigger vulnerability is LPG. India imports about 60 per cent of its cooking gas needs, and around 90 per cent of those imports typically pass through Hormuz. This makes domestic LPG supply far more exposed than petrol or diesel to a prolonged disruption.

Will petrol and LPG prices increase?

A rise in international crude prices does not immediately translate into higher petrol and diesel prices because retail rates are influenced by taxes, oil marketing company margins and government intervention. But if Brent remains elevated for weeks, the pressure on public sector oil companies and inflation will increase.

LPG is more sensitive because supplies are concentrated in Gulf producers. A shortage could force India to buy costlier cargoes from distant suppliers, increasing subsidy costs or putting pressure on household cylinder prices. Commercial users, including restaurants and hotels, are likely to feel the impact first if supplies tighten.

Which industries are most exposed?

A sustained Hormuz disruption would hurt airlines, shipping companies, road transport operators, chemicals, fertiliser producers, plastics manufacturers and paint companies. Higher crude prices also raise input costs for logistics, construction and consumer goods firms.

Natural gas-dependent industries, including city gas distributors, fertiliser units and power plants, could face pressure if LNG cargoes are delayed or become more expensive. India depends on imports for around half of its natural gas needs, and a large part of those supplies has traditionally moved through Hormuz.

Can India avoid another energy shock?

India cannot fully insulate itself from a global oil-price surge, but it is better placed than in previous crises. Diversified crude sourcing, strategic reserves, flexible refineries and higher domestic refinery output provide a cushion.

Yet the Hormuz crisis has exposed a clear weakness: LPG and LNG remain far more difficult to replace quickly than crude. India’s immediate task is to secure alternative cargoes, protect Indian vessels and prevent panic buying. Its longer-term challenge is to build larger gas and LPG buffers so that a conflict in the Gulf does not become a household energy crisis at home.