The Strait of Hormuz is the central artery of the global energy system. About 20–21 million barrels per day (bpd) of crude oil passed through this narrow passage, which is about one-fifth of global petroleum consumption. Moreover, about 25-30 percent of global LNG trade passes through the same route.
For emerging economies like India, the implications of closing the Strait of Hormuz are immediate and serious. India imports about 85 percent of its crude oil needs, of which about 40 percent comes from the Middle East. This creates a structural dependency on a single chokepoint. Unlike diverse energy systems, India’s supply chain has limited redundancy.
According to the International Energy Agency (IEA) oil market report Published March 12, 2026 Global oil supply is projected to fall by at least 8 million bpd in March alone due to production shutdowns across the Gulf. This is the largest supply disruption in the history of the modern oil market. Continued disruptions in crude oil supply could lead to significant increases in crude oil prices. At oil at $130 and above, the macroeconomic impact becomes systemic for India.
The first means of transmission is inflation. Energy costs are directly involved in transportation, logistics, and manufacturing. In India, where supply chains remain cost sensitive, higher fuel prices quickly translate into higher food and core inflation. This will push the consumer price index well above the RBI’s target range, leading to a halt or reversal of any easing cycle.
The second channel is fiscal. The Indian government has historically used fuel taxes as a shock absorber. During rising crude oil prices, excise duty is often reduced to control inflation. This comes at a fiscal cost. Therefore, a prolonged oil shock will affect government revenues and also increase expenditure pressure.
The third channel is development. Higher energy prices act as a tax on consumption. Household spending has weakened, corporate margins have come under pressure and capital expenditure decisions are being delayed. Emerging markets are particularly vulnerable to such shocks because they lack the financial buffers available to developed economies.
What changes this from a cyclical challenge to a structural risk is the duration. Small disruptions can be managed. Global strategic petroleum reserves may be released. IEA can coordinate supply responses. Demand may adjust on margin.
However, data suggests that these mechanisms are inadequate for longer-term disruptions. IEA countries collectively have more than 1 billion barrels of emergency reserves, but the coordinated release could supply only 2-4 million bpd on a temporary basis. This is worthwhile for short-term shocks, but inadequate if a significant portion of the 20 million bpd flowing from Hormuz is disrupted for weeks or months.
OPEC’s spare capacity, estimated at 3-4 million bpd, provides limited relief. More importantly, this additional capacity also depends on shipping routes that are themselves constrained by the same chokepoints or limited bypass infrastructure. Saudi Arabia and the United Arab Emirates maintain partial bypass pipelines, but their combined capacity cannot completely overcome the disruption. Countries like Iraq, Kuwait and Qatar have no viable alternative.
In other words, there is very little slack in the system. For India, this lack of flexibility translates directly into insecurity. The situation becomes even more worrying in comparison to China. Over the past decade, China has systematically built up strategic petroleum reserves. Estimates suggest that China’s combined strategic and commercial reserves could cover 90 to 100 days of imports, as it holds an estimated 1.2 to 1.3 billion barrels of total crude oil. Additionally, China has diversified its supply base to Russia, Central Asia, Africa and Latin America.
India’s situation is quite weak. India’s strategic petroleum reserves currently cover about 9-10 days of consumption. Even after including commercial inventories, which could theoretically provide an additional buffer of 64.5 days, the total buffer remains below that of China. According to a recent government report, the country has more than 250 million barrels of crude oil and petroleum products. The combined reserves provide a buffer of 7-8 weeks in the country’s energy supply chain.
If the Strait of Hormuz faces disruption for a few days or a few weeks, India can manage through inventory drawdown, policy adjustment and short-term market intervention. However, if the disruption extends to late April and beyond, the situation changes fundamentally.
At that time, India would be facing the double whammy of high prices as well as limited physical supply. Refineries may face shortage of feedstock. There may be a reduction in fuel availability. The government may be forced to implement demand management measures. Inflation will rise sharply and the rupee may come under sustained pressure. Financial markets have already begun to price in macro volatility.
In contrast, China will have more room for maneuver. Large reserves allow it to smooth out supply disruptions. Diversified sourcing reduces dependence on Hormuz. State control over energy infrastructure enables more coordinated responses. These benefits are lacking in India.
Vulnerability is not just about crude oil. It is spread across the entire energy complex. In 2025, the Gulf is expected to export approximately 3.3 million bpd of refined products and 1.5 million bpd of LPG. These flows are now seriously disrupted. Refining capacity in the region has already been reduced by more than 3 million barrels per day due to the strikes and logistics disruptions.
India consumes about 1.1 to 1.2 million bpd of LPG, a large portion of which is imported from the Gulf. More than 45 percent of Middle Eastern LPG exports are directed to India, primarily for domestic consumption. Unlike industrial fuels, LPG consumption in India is linked to basic domestic needs like cooking. The ability to replace or reduce this consumption in the short term is limited. At the same time, LPG storage capacity in India is minimum. Supply chains are designed for continuous flow rather than storage. This creates a delicate balance.
There is another avenue of risk that is often underappreciated: LNG. Qatar exports about 75–80 million tonnes of LNG per year, most of which passes through Hormuz. The disruption will therefore not only impact oil markets, but also global gas markets.
For India, which is increasing its dependence on LNG for power generation and industrial use, this creates an additional layer of vulnerability. Higher LNG prices will impact power costs, fertilizer production and industrial input prices. This has increased the shock of inflation. Combined effect is a multi-layer stress phenomenon. Oil prices increased. Gas prices increased. Inflation increases. Growth slows down. Both fiscal and monetary policy are constrained.
For India, a short disruption is manageable. Medium-term disruption is painful. Prolonged disruption is destabilizing. We must remember that the oil shock of the 1970s was one of the main factors contributing to the emergency declared by Indira Gandhi in 1975. This is why the timeline matters more than the event. If the crisis extends beyond the end of April, India will find itself in a precarious situation where its limited reserves, high import dependence and constrained policy flexibility will translate into a full-scale supply shock.
The uncomfortable reality is that India is not adequately prepared for such a scenario. Emerging economies that import oil will bear the greatest burden from the closure of the Strait of Hormuz. Among them, India stands out due to its dependence on imported energy from the conflict zone and limited buffer capacity.
The Indian government’s good relations with Russia will help ease the situation. As of March 2026, Russia remains India’s largest crude oil supplier, with its share reaching 33 percent in mid-2025. Recent reports suggest Indian refineries are increasing purchases, with about 33 million barrels of Russian crude due to arrive in March 2026 after US rebates. Although Russian oil will provide some relief to India, it may not be enough in the event of a prolonged conflict.
The Iran crisis has exposed India’s energy vulnerabilities with unusual clarity. If this conflict continues, it could cause significant economic damage to India. Disruptions in the Strait of Hormuz cause energy shocks that weigh on domestic inflation, growth and financial stability. If the disruption continues beyond a limit, it will have a devastating impact on our economy and markets.
Smirn Bhandari is an investment manager and equity analyst with a keen interest in geopolitics, financial markets and global power dynamics. He has written articles in leading publications including Firstpost, Swarajya, The Wire, Newslaundry and The Quint. His writing focuses on the intersection of economics and geopolitics. The views expressed are personal.
