Impact Of Hormuz Closure On Indian Trade Routes

The Strait of Hormuz: A Critical Chokepoint for Indian Trade

The Strait of Hormuz, a narrow waterway between Iran and Oman, handles roughly 20% of global oil shipments and serves as the primary transit route for energy and commodity shipments to and from South Asia, Europe and East Africa. For India, the world’s third-largest energy consumer, the strait is an irreplaceable trade artery: recent escalations in the ongoing West Asia conflict, particularly the war between the United States-Israel and Iran, have raised urgent concerns about the risk of a full or partial closure of the waterway, with far-reaching implications for the country’s trade, economy and household budgets.

Immediate Disruptions to Core Indian Trade Flows

A closure of the Strait of Hormuz would cut off India’s access to the majority of its imported energy and industrial commodities almost overnight, triggering cascading disruptions across sectors. The most immediate impact would hit crude oil supplies, which power the country’s transportation, manufacturing and power generation sectors. Over 60% of India’s total crude oil imports, amounting to nearly 4 million barrels per day, transit the strait, meaning a closure would eliminate access to this critical supply source within days as existing stockpiles run down.

The disruption would extend far beyond crude oil, impacting essential household and industrial goods:

• LPG and cooking gas shortages: Roughly 40% of India’s liquefied petroleum gas imports, the primary cooking fuel for more than half of the country’s households, move through the Strait of Hormuz. A closure would lead to widespread supply gaps, forcing rationing and sharp price hikes for basic cooking fuel.
• Petrochemical and fertilizer supply gaps: Key feedstocks for India’s fertilizer and plastic manufacturing sectors rely on shipments via the strait. Production halts in these sectors would push up prices for food packaging, agricultural inputs and consumer goods, adding to inflationary pressure.
• Maritime trade delays for non-energy goods: A significant share of India’s exports to Europe and Africa, including textiles, pharmaceuticals and engineering goods, also transit the Strait of Hormuz. A closure would force ships to take longer alternate routes, delaying deliveries and raising costs for Indian exporters.

Long-Term Rerouting Costs and Trade Balance Pressures

In the event of a prolonged closure, India would be forced to reroute the majority of its Hormuz-bound shipments via the Cape of Good Hope around southern Africa, adding 10 to 15 days of travel time for crude oil tankers and bulk cargo ships. This rerouting would increase per-shipment shipping costs by 30 to 40%, while also driving up marine insurance premiums for all vessels operating in the region. These added costs would flow directly to consumers, pushing up prices for fuel, food and manufactured goods, and widening India’s trade deficit as import bills for energy and other commodities rise.

While limited alternative options exist, they are unable to match the volume and efficiency of Hormuz transit. A proposed pipeline linking the UAE to Oman’s coast, for example, has a maximum capacity of just 1.5 million barrels per day, less than half of the crude oil India currently imports via the strait. Overland trade corridors such as the International North-South Transport Corridor (INSTC) offer potential for reduced transit times for non-bulk goods, but lack the infrastructure to handle the scale of energy and bulk commodity shipments India relies on.

Mitigation Efforts and Remaining Vulnerabilities

In recent years, India has taken steps to reduce its exposure to Hormuz-related risks. It has diversified its crude oil import basket, increasing purchases from the United States, Russia and West Africa, all of which do not require transit through the strait. The country has also expanded its strategic petroleum reserves to hold enough oil to cover 90 days of domestic consumption, providing a critical buffer in the event of a short-term closure. Long-term investments in renewable energy and domestic energy production are also aimed at reducing overall dependence on imported fossil fuels over time.

However, even with these measures, India remains heavily reliant on the Strait of Hormuz for a large share of its energy needs. A prolonged closure would still outpace the country’s ability to secure alternative supplies at scale, leading to sustained economic disruption, inflationary pressure and reduced growth momentum for trade-dependent sectors.