Since March 1, 2026, Iran has effectively blocked the Strait of Hormuz—the narrow waterway connecting the Persian Gulf to the Gulf of Oman through which approximately one-fifth of the world’s oil and gas supplies transit. This blockade, a consequence of the escalating military conflict between Iran on one side and the United States and Israel on the other, has created the most severe disruption to global energy supply chains since the 1973 Arab oil embargo. Brent crude prices have surged to nearly 88 dollars a barrel within a week, more than 600 ships are estimated to be stranded in the Persian Gulf unable to transit the strait, and war risk insurance premiums for Persian Gulf routes have increased by 10 to 15 times.
For India, the consequences are acute and potentially lasting. Over 55 percent of India’s oil imports transit the Strait of Hormuz, and approximately 60 percent of India’s LPG supply is imported, largely from Persian Gulf countries including Saudi Arabia and Qatar. The government has invoked the Essential Commodities Act to prioritise LPG production and advised consumers to use cooking fuel judiciously. Stock markets have fallen 1.3 percent for the third consecutive session. The Indian gem and jewellery industry, which relies heavily on the UAE and GCC markets for both exports and raw material imports, faces a dual supply and demand shock.
This issue is foundational for UPSC examination preparation because energy security is explicitly mentioned in the GS Paper III syllabus under ‘Infrastructure: Energy, Ports, Roads, Airports, Railways.’ It also implicates GS Paper II topics of international relations and India’s neighbourhood policy, and the broader Essay themes of globalisation, interdependence, and the vulnerabilities of supply chain globalisation. The Hormuz crisis provides a real-time case study of how geopolitical disruptions translate into macroeconomic consequences for import-dependent developing economies.
Background and Context
| Five Important Key Points |
| 1. The Strait of Hormuz, at its narrowest point 21 miles wide, handles approximately 21 million barrels of oil per day—roughly 21 percent of global petroleum liquids consumption—making it the world’s single most important chokepoint for energy trade. |
| 2. India’s oil import bill runs approximately 11.5 billion U.S. dollars per month; a 20 percent increase in crude prices sustained over a quarter could add nearly 25 billion dollars to the annual import bill, significantly worsening the Current Account Deficit. |
| 3. More than 600 ships, including approximately 250 oil tankers and gas carriers, are estimated to be stranded west of the Strait of Hormuz, with at least 10 percent being Indian-flagged vessels; the Shipping Corporation of India has ships carrying approximately 9 lakh tonnes of cargo in the affected area. |
| 4. India’s strategic petroleum reserves currently provide only about 25 days of crude oil coverage—significantly below the International Energy Agency’s recommended 90-day strategic reserve standard for member countries. |
| 5. The conflict has directly impacted India’s gem and jewellery sector, which exported goods worth approximately 8.3 billion dollars to GCC countries in 2024-25 while importing approximately 28 billion dollars in rough diamonds, gold bullion, and precious metals from the same region. |
Historical Context: Energy Chokepoints and India’s Vulnerability
The concept of strategic chokepoints in global energy trade has been a concern of geopolitical analysts since the Suez Crisis of 1956. The Strait of Hormuz, the Strait of Malacca, the Bab-el-Mandeb Strait, the Suez Canal, and the Turkish Straits collectively handle the majority of global seaborne oil and gas trade. India is vulnerable to disruptions in multiple of these chokepoints simultaneously: its oil imports from the Gulf transit Hormuz, while its trade with East Asia and the Pacific transits Malacca.
The 1973 OPEC oil embargo, which quadrupled oil prices and triggered a global recession, was the foundational shock that motivated Western industrial nations to create the International Energy Agency in 1974 and establish the 90-day strategic reserve requirement. India, as a non-IEA member until it became an association member in 2017, did not develop comparable strategic petroleum reserves. India’s current strategic petroleum reserve programme—underground rock caverns at Visakhapatnam, Mangaluru, and Padur—has a capacity of approximately 5.33 million tonnes, representing about 9.5 days of import coverage at current import rates.
Economic Implications: Inflation, CAD, and Rupee Depreciation
The macroeconomic transmission channels from an oil price shock to the Indian economy are well-established. A sustained 20-dollar increase in crude oil prices adds approximately 0.5 percentage points to India’s headline inflation (through fuel and transport cost increases), worsens the current account by approximately 15 billion dollars annually, and puts depreciation pressure on the rupee. JM Financial Services has projected that if Brent crude breaches 90 dollars per barrel, India’s Current Account Deficit could widen to 1.4 percent of GDP and the rupee could depreciate to 95 per U.S. dollar.
The downstream effects extend across multiple sectors. Aviation turbine fuel costs have risen 30 percent, creating pressure on domestic airline fares. The fertiliser industry depends on natural gas as a feedstock; government sources have reported a 40 to 60 percent dip in natural gas supplies since the conflict began, threatening kharif season preparation despite current buffer stocks of 177.31 lakh metric tonnes of fertilisers—a 36.5 percent year-on-year increase due to advance stocking. The LPG supply disruption has prompted commercial consumers using 19 kilogram cylinders to be told supplies will not be available, creating pressure on the hotel and restaurant industry.
Geopolitical Dimensions and India’s Diplomatic Position
The Strait of Hormuz blockade places India in an extraordinarily difficult diplomatic position. Iran is claiming that India must ask the U.S. why it is targeting Iranian ships in the Indian Ocean, while the U.S. is simultaneously granting a 30-day waiver for Russian oil imports conditional on India ramping up purchases of American oil. India has denied providing logistical assistance to U.S. military operations against Iran—a position consistent with its stated non-interference in the conflict—but the presence of the Iranian warship IRIS Lavan with 183 crew members at the Kochi naval facility creates unavoidable diplomatic sensitivity.
Kerala Chief Minister Pinarayi Vijayan’s appeal to Prime Minister Modi to engage with airlines to regulate West Asia-India airfares—which have reached predatory levels of up to 1.5 lakh rupees for a Dubai-Mumbai ticket—illustrates how the geopolitical conflict translates directly into distress for the approximately 8 million Indians working in the Gulf region, whose remittances (approximately 25 billion dollars annually from the Gulf alone) are a significant component of India’s Balance of Payments.
India’s Energy Security Architecture: Gaps and Reforms Needed
India’s energy security strategy rests on three pillars: import diversification, strategic reserves, and renewable energy transition. On import diversification, India has made progress in recent years—Russian oil went from near-zero to 43 percent of imports at peak, and India has sourced crude from the United States, Brazil, and various African producers. However, over 55 percent of imports still transit the Hormuz, revealing the limits of diversification at the origin point when the transit chokepoint is compromised.
On strategic reserves, India’s 9.5-day coverage must be expanded to at least 30 days as an intermediate target, with a long-term aspiration of 90 days aligned with IEA standards. The government has announced plans to expand reserve capacity through underground caverns in additional locations. On renewable energy, India’s installed renewable capacity of over 200 GW and the target of 500 GW by 2030 represent meaningful progress, but transport and industrial sectors remain heavily oil-dependent—the transition to electric mobility and green hydrogen must be accelerated.
Way Forward
India must pursue a five-track response to the current crisis and the structural vulnerabilities it has exposed. First, immediately activate all available alternative supply routes and suppliers, including Brazilian, West African, and Central Asian crude via overland routes. Second, accelerate the expansion of strategic petroleum reserve capacity to a minimum of 30 days on an emergency procurement basis. Third, convene an emergency meeting of the Indo-Pacific energy security framework to coordinate with like-minded nations on supply stabilisation. Fourth, negotiate directly with Gulf LNG producers for alternative delivery mechanisms that avoid the Hormuz chokepoint. Fifth, fast-track the National Green Hydrogen Mission and domestic biofuel programmes as structural long-term solutions to oil import dependence.
Relevance for UPSC and SSC Examinations
GS Paper III: Infrastructure—energy security; effects of liberalisation on the economy; mobilisation of resources; inclusive growth. GS Paper II: International relations—India’s strategic interests; bilateral, regional, and global groupings. Essay: Energy security, globalisation and its discontents, India’s place in the new world order.
SSC Examinations: General Awareness—geography of strategic waterways, OPEC, oil prices, India’s trade, Indian Ocean geopolitics. Key terms: Strait of Hormuz, Strategic Petroleum Reserve, IEA, Current Account Deficit, Brent Crude, LEMOA, war risk insurance, National Green Hydrogen Mission, Essential Commodities Act 1955, chokepoint, Shipping Corporation of India, remittances, aviation turbine fuel.