The Strait of Hormuz, a narrow waterway between Oman and Iran, connects the Persian Gulf to the Gulf of Oman and the Arabian Sea. At its narrowest point, it's only 21 miles wide but it is a crucial chokepoint for global energy supplies. According to the U.S. Energy Information Administration (EIA), roughly 20 million barrels of oil transit the strait daily, which accounts for approximately one-fifth of global oil consumption. Besides crude oil and petroleum products, a significant portion of the world's liquefied natural gas (LNG) also passes through this strait, primarily from Qatar.

Recently, tensions in the region have escalated, with Iran's parliament voting to close the Strait of Hormuz in response to U.S. strikes on Iranian nuclear facilities. While the final decision rests with Iran's Supreme National Security Council and Supreme Leader Ayatollah Khamenei, this action has triggered concerns about potential disruptions to global oil supplies and the impact on economies worldwide, especially countries like India that rely heavily on this waterway.

Impact on India

India relies on the Strait of Hormuz for a substantial portion of its crude oil and LNG imports. Approximately 40% of India's crude oil, equating to about 2 million barrels per day, is sourced through this route, connecting India to major oil-exporting countries like Iraq, Saudi Arabia, the UAE, and Kuwait. Additionally, over 50% of India's LNG imports, mainly from Qatar, are shipped through the Strait. These imports are essential for India's energy needs, fueling transportation, power generation, industrial activities, and fertilizer production.

A closure of the Strait of Hormuz could have several adverse effects on India:

• Increased Oil Prices: Disruption of oil supplies would likely cause a sharp spike in global oil prices. Some experts predict that oil prices could surge and remain sustainably above $90 per barrel. This increase would elevate India's import bill, potentially widening the trade deficit by 20-30 basis points of GDP.
• Inflation: Higher oil prices would likely translate to increased inflation within India. If the price increase is passed on to consumers, inflation could rise by approximately 30 basis points.
• Disruption of Supplies: While India has diversified its oil sources in recent years, a significant portion of its crude oil imports still passes through the Strait. A closure could lead to temporary disruptions in crude oil supplies from key Middle Eastern countries like Iraq and Saudi Arabia.
• Economic Instability: A prolonged closure of the Strait could lead to broader economic instability, affecting various sectors and potentially slowing down economic growth.

India's Response and Alternatives

Despite the potential risks, India has taken steps to mitigate the impact of any disruptions in the Strait of Hormuz:

• Diversification of Supply Sources: India has been actively diversifying its oil and gas supply sources. A large volume of India's supplies now comes from countries that do not rely on the Strait of Hormuz, such as Russia.
• Strategic Petroleum Reserves: India maintains strategic petroleum reserves that can provide a buffer in case of supply disruptions.
• Alternative Trade Routes: While there is no direct sea route alternative, efforts are being made to explore alternative routes, such as transporting oil overland through pipelines. Saudi Arabia and the UAE have existing pipelines that can bypass the Strait to some extent, though their capacities are limited compared to the volume that passes through the Strait.
• Increased Domestic Production: India is also focusing on increasing domestic oil and gas exploration and production to reduce import dependence.
• Focus on Renewables: India is promoting the use of renewable energy sources and alternative fuels like ethanol, CNG, green hydrogen, and electric vehicles to reduce its reliance on fossil fuels.

Conclusion

The Strait of Hormuz remains a critical chokepoint for global oil and gas supplies, and any disruption could have significant consequences for India's energy security and economy. While Iran's threat to close the Strait has raised concerns, India's strategic diversification efforts, logistical planning, and contingency measures have reduced its dependence on this volatile corridor. Close monitoring of the situation, along with proactive measures to diversify energy sources and promote energy efficiency, will be crucial for India to navigate any potential challenges arising from tensions in the region.