The Strait of Hormuz is a narrow stretch which is important for global trade flows, and is alone responsible for the transit of a fifth of the world’s oil supply. Asian economies like India and China source a big chunk of their crude oil, LPG, and LNG requirements via this strait. Even as the blockade is expected to impact only Iranian energy flows, the impact on India may be indirect, say experts. Fundamentally, what needs to be understood is that any restrictions to the flow of crude oil in the world markets will raise prices, in turn causing import bills of dependent economies like India to balloon. Even before the blockade took effect, crude oil prices have gone past the $100 dollar mark, which does not spell good news for India’s current account deficit.

What Does it Mean For India?

Sumit Ritolia, Manager Modelling and Refining at Kpler is of the view that it is still early to draw definitive conclusions on the extent of impact from a potential US-led blockade or disruption in the Strait of Hormuz, and much will depend on how enforcement and vessel movements evolve in the coming days.

From a crude oil standpoint, Ritolia explains that since India’s direct exposure to Iranian crude remains limited, any tightening of US restrictions would not materially impact India’s direct imports from Iran in the immediate term but will surely pressure China’s crude imports.In fact, Ritolia believes that second order effects via China are the thing to watch out for. “The situation is a bit more nuanced than a straightforward “blockade impact,” but the real risk lies in the second-order effects, particularly via China,” he tells TOI.He lists pressure points is global market dynamics:

In the coming weeks, the Kpler analyst expects an upward pressure on crude prices driven more by China’s rebalancing than India’s buying; tighter availability of discounted barrels, particularly if Russian flows also face constraints; and a higher import bill for India, even if overall volumes remain stable!

Sourav Mitra, Partner – Oil & Gas at Grant Thornton Bharat warns that the blockade of the Strait of Hormuz by the US Navy presents a stratified energy and economic shock for India that will go beyond just oil and gas. “Even though the Americans have said the blockade only applies to Iranian Ports, crude oil prices have again breached $100/Bbl as insurers, shippers and traders’ price in higher geopolitical risk,” Mitra tells TOI.

India has been stepping up crude oil procurement from Russia, and its purchases are near levels seen in June 2023. In fact, Russian crude has helped to a large extent mitigate risks arising from oil supply disruptions due to Strait of Hormuz transit issues. India’s procurement of Russian crude is expected to continue to be high if the Middle East conflict persists.

Sourav Mitra is confident that India can partly offset any supply risks from a Strait of Hormuz disruption by increasing crude oil sourcing from Russia, which bypasses the chokepoint. However, he points out that Russian oil is no longer a low‑cost substitute. Heightened global demand, shrinking “sanctions discounts,” rising freight and insurance costs, and competition from other buyers have pushed Russian crude to trade at premium on a delivered basis at Indian ports compared to the past. “As West Asian supplies face disruption, Russia’s growing leverage allows it to price crude more aggressively, meaning India can secure volumes but at higher landed costs, limiting the inflation‑shielding benefit that discounted Russian oil once provided,” he says.

LPG & LNG concerns mount?

More than crude oil, experts warn about the impact on India’s LPG and LNG supply. Since the start of the US-Iran war, India’s LPG and LNG imports have taken a hit, forcing the government to ration supply for commercial purposes, while raising the time period between bookings for domestic cylinders. While some tankers have managed to transit the Strait of Hormuz, the blockade by the US may risk supply further.Sourav Mitra of Grant Thornton Bharat sees India facing rising landed costs for LNG and LPG as well.

“Around 30-40% of India’s crude, 45-55% of its LNG, and 85-90% of imported LPG volumes transit Hormuz, creating direct pressure on fuel inflation, fertilizer costs, and household cooking gas subsidies. They also impact the power sector but since gas-based power is not at a significant scale in India, the effect is limited,” he says. The impact is also likely to widen India’s trade deficit, pressuring the rupee, and pushing up manufacturing and petrochemical input costs. Critically, the risks extend to remittances as well, that is, any sustained disruption to Gulf economies, which are home to 8-9 million Indian workers, could threaten the $100 billion annual remittance inflow, amplifying the macroeconomic blowback of what is already a volatile global scenario, he adds.From an economic point of view Arun Singh, Chief Economist at Dun & Bradstreet India sees the disruption in the Strait of Hormuz as a key concern for India given the corridor’s role in global energy flows.Singh says that the government has outlined multiple mitigating measures to sustain supplies. India has diversified crude sourcing to around 40 countries, and about 70% of crude import volumes are now routed outside Hormuz (up from around 55% earlier), reducing direct transit concentration. Refineries are operating at high utilisation and additional crude cargoes are already en-route, which supports near-term continuity, he tells TOI.

For the Dun & Bradstreet India’s Chief economist, the main watchpoint is LPG: roughly 60% of domestic consumption is import-dependent and around 90% of LPG imports typically transit Hormuz, which can create intermittent tightness and price volatility if disruption persists. But, as he notes, the government has indicated that domestic production has been increased through a recent government order by diverting production from other sources to LPG. On gas, procurement through alternative suppliers and routes is underway, he adds.As Sumit Ritolia explains: From India’s perspective, the more immediate and critical vulnerability is LPG rather than crude. LPG supplies from the Middle East have recently tightened, prompting India to actively work on securing volumes from key regional suppliers, including opportunistic engagement with Iran. “In parallel, India has been closely coordinating with regional stakeholders to manage and maintain LPG vessel flows, ensuring shipment continuity even amid disruptions. Recent transits through the Strait of Hormuz suggest that flows are being carefully managed despite elevated risks. However, any further disruption, particularly impacting supplies from Iran or other Gulf countries, would likely tighten India’s LPG balance further,” Ritolia tells TOI.However, the Kpler analyst is clear in stating that the situation remains a very early-stage development, and it will be important to closely monitor how enforcement, trade flows, and buyer behavior evolve over the coming days and weeks.“It is still early to draw definitive conclusions on the extent of impact from a potential US-led blockade or disruption in the Strait of Hormuz, and much will depend on how enforcement and vessel movements evolve in the coming days. Net-net the impact on India’s crude strategy is unlikely to come from losing Iranian barrels, but rather from paying more for alternative supplies amid tighter global market conditions,” he explains.Also as of now It is also too early to assess whether a potential blockade would materially impact UAE bypass routes or pipeline-based loadings, which could offer partial mitigation but are limited in capacity, he concludes.

Economic Impact

Radhika Rao, Executive Director and Senior Economist at DBS Bank says that the Indian economy will have to balance a trade-off between protecting fiscal credibility or pushing harder for growth.She believes that if crude oil prices continue to rise, a hike in retail petrol prices may be inevitable.“Back in 2022, in the wake of the Russia–Ukraine conflict, a combination of duty cuts and pump price adjustments was undertaken to share the burden, with some degree of demand destruction also occurring as a result. As the tensions in the Middle East persist, initial policy action has been focused on a redistribution of the burden of high costs, from the oil companies to the fiscal books, which has partly been passed on to private refiners by way of a recently announced increase in export duties on selected fuel segments. If the supply shock deepens, a gradual increase in retail fuel prices might be the next step,” she tells TOI.

Apart from the crude oil, LPG, and LNG supply disruptions, it is the higher cost of imports which threaten to feed into inflation forcing industry to either raise prices, or cut back on packaging sizes as has already been indicated by the FMCG sector.If the disruption persists, the impact could spread widely across the economy, pushing up costs for industries ranging from FMCG and chemicals to fertilisers and even healthcare, while also feeding into inflation and weakening growth.

Higher oil prices will eventually widen the current account deficit, add pressure on the rupee, and ultimately strain government finances. This can create a cascading effect across sectors. While India has managed the initial shock, a sustained escalation risks a broader, system-wide crisis.