 "Will India be hit if Iran closes Strait of Hormuz? How will West Asia war impact trade?")
It’s a jittery Monday. A day after the US struck nuclear sites in Iran, there are concerns about disruption in the energy markets, even more so after Iran’s parliament approved a motion calling for the closure of the Strait of Hormuz, the oil artery of the world. While the final call on this crucial oil supply route will be taken by Iran’s Supreme National Security Council, oil prices on Monday hit a five-month high before easing and Asian markets slid. India will be impacted as uncertainty continues over the US and Iran’s next movie.
New Delhi has stakes in both Israel and Iran, and a prolonged conflict could hit everything from oil supply, trade and the rupee. We analyse how prepared India is for the fallout from the West Asia crisis.
Strait of Hormuz and India’s oil trade
India is watching closely if Iran will act on its threat and shut down the Strait of Hormuz , the world’s most critical oil transit checkpoint. The Islamic Republic has never done this in the past, though similar warnings have been issued on multiple occasions.
Iran is the world’s ninth-biggest oil-producing country with an output of nearly 3.3 million barrels a day. India, the world’s third-largest consumer of crude oil, depends heavily on imports to meet more than 85 per cent of its requirements. However, Indian refiners do not purchase crude from Iran, as its energy sector is sanctioned by the US, The Indian Express reports.
India has also shifted its oil procurement strategy with a focus on Russia and the US. Imports from Russia increased after the Ukraine invasion because of good discounts following Western sanctions. American oil shipments to India increased to 439,000 barrels per day in June, higher than the 280,000 bpd in the earlier month. The dependence on West Asian countries is slowly reducing.
But India still gets its crude oil from Iraq, Saudi Arabia and the UAE. It also purchases oil from Kuwait, Qatar, and Oman. The Strait of Hormuz, then, matters to India as close to 47 per cent of this imported crude is transported via this route, the report says.
So if the oil supply channel is disrupted, the distribution in the supply chain will hit India.
The shutting down of the narrow passage would have significant global repercussions across energy markets, and it will impact India’s energy security as well, Dr Laxman Kumar Behera, associate professor at Special Centre for National Security Studies at the Jawaharlal Nehru University, told news agency PTI.
According to Behera, any disruption in the critical shipping lane, which is a geopolitical flashpoint, will majorly impact India’s crude oil imports from Iraq and, to an extent, from Saudi Arabia.
However, the Indian government says it is prepared. Petroleum and Natural Gas Minister Hardeep Singh Puri said for the past two weeks, India has been closely monitoring the evolving geopolitical situation in West Asia.
“Under PM Narendra Modi’s leadership, India has diversified its supplies over the past few years, reducing reliance on the Strait of Hormuz,” he said. “Our oil marketing companies have several weeks of supplies and continue to receive energy from various routes. We will take all necessary steps to ensure the stability of fuel supplies for our citizens.”
Puri said if India imports only about 1.5 million barrels through this route, it will turn to other suppliers to fill the gap if the strait is closed.
Behind-the-scenes negotiations are reportedly underway to ensure that Russia, Qatar, and African countries provide more oil without relying on the Strait of Hormuz, reports News18.
Inflation
While India might have enough oil supplies for now, it is likely to be affected by the disruptions if the oil route is shut. In such a scenario, oil prices could see a jump.
“Oil prices are expected to surge due to increased tensions in the region, with some analysts predicting prices to reach $80-$90 per barrel or even $100 per barrel if Iran responds with retaliatory measures,” said Captain D K Sharma (retd), a former Indian Navy spokesperson, who closely follows developments in the Gulf region. Some experts even hint that it could touch $120 per barrel.
The surge in prices will have a domino effect in India. If oil prices rise, it will lead to higher energy and shipping costs, leading to domestic inflation.
However, India should not be worried just yet. Sachchidanand Shukla, group chief economist at Larsen & Toubro, told Mint, “India can absorb oil prices up to $85 a barrel without triggering large macro imbalances. There is no need to panic, and one needs to keep an eye on how the situation evolves.”
India’s trade with West Asia
Both Iran and Israel are important trading partners for India.
Basmati rice is one of India’s big exports to the Islamic Republic, which amounted to $753.2 million in FY25. Other exports are banana, tea, soya, and Bengal gram.
The basmati exports to Iran have stopped since the latest conflict with Israel started 12 days ago. Operations at Iran’s Bandar Abbas port have reportedly been suspended, and many consignments are stuck.
“We export around one million tonnes of basmati to Iran, which is approximately 15 to 16 per cent of total global export from India. Due to the present crisis, now around Rs 3,000 crore worth of export orders are hanging in the balance as no one knows how the situation will develop in the coming days as the banking infrastructure there has either collapsed or frozen, thus no transactions. We have just kept our fingers crossed,” Ranjit Singh Jossan, vice-president of the Basmati Rice Miller and Exporter Association, told The New Indian Express.
Other perishable items like bananas and tea will also be hit by delays.
India exports 20,000 to 25,000 tonnes of tea to Iran, especially from Assam. However, exports are now on hold because of the conflict. B Rajesh Chander, a member of the Tea Board India, told The Hindu last week, “There is fear that exports to countries such as Azerbaijan and Kazakhstan may also get affected in the future if the conflict continues.”
“A prolonged conflict could dampen Iranian demand and squeeze Indian exports,” Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), said.
Israel is a larger trading partner – exports in FY 2024-25 amounted to $2.1 billion, and imports were at $1.6 billion.
Trade with other countries in West Asia, like Iraq, Jordan, Lebanon, Syria and Yemen, could be hit. India’s exports to the region stood at $8.6 billion, and imports were $33.1 billion.
Financial markets
India’s benchmark indices, Sensex and Nifty, opened lower on Monday over tensions in West Asia. Almost all sectors were in the red.
The Indian rupee fell 20 paise to 86.75 against the US dollar in early trade. The Indian rupee and government bonds face pressure this week following the US strike on Iran.
It is impossible to be shielded from the impact of the conflict. However, a few cautionary steps will prevent New Delhi from feeling the full blow.
 "Russian drones over Poland: Trump’s tepid reaction a wake-up call for Nato?")
 "As Russia pushes east, Ukraine faces mounting pressure to defend its heartland")
 "Why Mossad was not on board with Israel’s strike on Hamas in Qatar")
 "Turkey: Erdogan's police arrest opposition mayor Hasan Mutlu, dozens officials in corruption probe")
 "Russian drones over Poland: Trump’s tepid reaction a wake-up call for Nato?")
 "As Russia pushes east, Ukraine faces mounting pressure to defend its heartland")
 "Why Mossad was not on board with Israel’s strike on Hamas in Qatar")
 "Turkey: Erdogan's police arrest opposition mayor Hasan Mutlu, dozens officials in corruption probe")
