USrael v/s Iran: India may suffer upto $40 bn loss if Tehran blocks the Strait of Hormuz

Virendra Pandit

New Delhi: Oil prices jumped on Monday to their highest since January 2025 as the US’ weekend ‘obliteration’ of Iran’s three key nuclear assets led an angry Tehran to threaten a blockade of the Strait of Hormuz, from where nearly 20 percent oil and gas flows to the run economies across the world.

Iran is OPEC’s third-largest crude producer, which, reeling under the West’s continuing sanctions for decades, sells much of its oil to China and other nations.

In the event of this blockade, India may not only suffer shortages of oil and gas but also face the potential loss of over USD 40 billion in business.

Out of the 5.5 million barrels of crude oil that India consumes daily, about 1.5-2 million come through the Straits of Hormuz, which is also called Asia’s energy lifeline. India imports roughly 4 million barrels through other routes.

Although India’s Dalal Street waited for the full impact of the fresh Iranian threat—Sensex and Nifty lost 511 and 132 points on Monday—the global energy sector began to see the impact. Brent crude futures were up USD 1.92 or 2.49 percent at USD 78.93 a barrel as of 0117 GMT. The US West Texas Intermediate (WTI) crude advanced USD 1.89 or 2.56 percent to USD 75.73.

Both contracts jumped by more than 3 percent earlier in the session to USD 81.40 and USD 78.40, respectively, touching five-month highs before giving up some gains. Some experts speculated that crude prices could go up to as high as USD 90 a barrel this week.

The rise in prices came after US President Donald Trump said he had “obliterated” Iran’s three main nuclear sites in massive strikes over the weekend, joining an Israeli assault in an escalation of conflict in the Middle East as Tehran vowed to defend itself.

Markets expect further price gains amid mounting fears that an Iranian retaliation may include a closure of the Strait of Hormuz, through which roughly a fifth of global crude supply flows, the media reported on Monday.

Iran’s Press TV said the Iranian parliament had approved a measure to close the waterway. Its Supreme National Security Council will take a final decision on closing the Strait of Hormuz.

In the past also, Iran threatened to close the strait but has never followed through on the move, primarily because it hurts Tehran’s own economy and military operations adversely.

While the potential loss of USD 40 billion in India’s business in the Middle East due to escalating conflict is a serious concern, this figure is a projection and not a guaranteed outcome. The impact on India’s economy will depend on the duration and intensity of the conflict, and how New Delhi adapts its trade and energy sourcing strategies.

The Middle East is a significant trading partner for India, with over USD 170 billion in trade, including 54 percent of the country’s oil imports. Any escalating and widening conflict could disrupt supply chains, increase energy costs, and negatively impact trade, potentially leading to losses of up to USD 40 billion, according to some reports.

Like China, India also relies heavily on the Middle East for oil, and disruptions could lead to price hikes and potential shortages, forcing India to seek alternative sources like Russia and the US. The ongoing turmoil in the Middle East has made uninterrupted oil and gas supplies from this region a challenge to many countries.

The ongoing Israeli-Iranian conflict could also derail massive, multinational infrastructure projects like the India Middle East Europe Economic Corridor (IMEEEC), which requires seamless connectivity through the region. Higher oil prices could lead to increased inflation, potentially impacting household budgets and requiring the Reserve Bank of India (RBI) to reconsider its monetary policy stance.

The silver line for India is that it is already diversifying its oil sources and could explore alternative trade routes to mitigate the impact of the conflict.

Although there are alternative pipeline routes out of the region, there will still be crude volume that cannot be fully exported out if the Strait of Hormuz becomes inaccessible. Shippers will increasingly stay out of the region, experts said.

Goldman Sachs said in a Sunday report that Brent could briefly peak at USD 110 per barrel if oil flows through the critical waterway were halved for a month, and remain down by 10 percent for the following 11 months.

It, however, still assumed no significant disruption to oil and natural gas supply, adding global incentives to try to prevent a sustained and very large disruption.

Brent has risen 13 percent since the Israeli-Iranian conflict began on June 13, while WTI has gained around 10 percent.

The current geopolitical risk premium is unlikely to last without tangible supply disruption, analysts said.

In India, Union Petroleum and Natural Gas Minister Hardeep Puri said, “We have been closely monitoring the evolving geopolitical situation in the Middle East since the past two weeks. We have diversified our supplies in the past few years and a large volume of our supplies do not come through the Strait of Hormuz now,” he said.

“Our oil marketing companies have supplies of several weeks and continue to receive energy supplies from diverse routes. We will take all necessary steps to ensure stability of supplies of fuel to our citizens,” Puri tweeted on X, according to media reports.

However, oil and gas being an ‘extremely sensitive’ sector, even limited disruptions can significantly increase global crude prices. If the closure of the Strait of Hormuz continues for over a week, it will jolt the global economy and India will also be exposed to potential fallout.

The government may consider reviewing excise duty cuts on fuel in case crude oil breaches the USD 105 per barrel level.

Hours before the US attacked Iran’s nuclear sites, Puri had already reviewed on Friday last week the status of maritime offshore security for the oil and gas installations of India’s energy sector in a meeting with senior officials of National Security Council Secretariat, the Ministry of Defence, the Indian Navy, the Indian Coast Guard, ONGC, and the Oil Ministry.