Iran threatens to close Hormuz—How it could hit India's economy
What's the story
Iran has threatened to close the Strait of Hormuz, a key maritime chokepoint for global oil shipments. The threat comes after US airstrikes on Iranian nuclear facilities and was approved by Iran's parliament. The final decision, however, will be made by the country's Supreme National Security Council. If carried out, this move could have major implications for India's energy security and global oil markets.
Trade route
Importance of the Strait of Hormuz
The Strait of Hormuz is a narrow channel at the mouth of the Persian Gulf, through which nearly 20% of the world's daily oil output passes. The strait carries exports from major producers such as Saudi Arabia, Iraq, and the UAE. For India, this route is extremely important as it accounts for nearly 40% of its crude oil imports and over 50% of its LNG supplies.
Economic impact
Citigroup, Shell warn about potential impact on global oil markets
Citigroup analysts have warned that the closure could cause major disruptions in the market. They predict Brent crude prices could jump to $90 a barrel if the strait is closed, despite believing a prolonged shipping halt is unlikely. "If that artery is blocked, for whatever reason, it has a huge impact on global trade," Shell CEO Wael Sawan said.
Expert opinions
What will be the impact on India?
Experts warn any blockade would elevate India's domestic energy costs and inflation, even as New Delhi builds strategic reserves and diversifies its sources to absorb external shocks. Nilesh Shah, Managing Director of Kotak Mahindra AMC, predicted a negative market reaction at first but emphasized that oil availability and pricing would ultimately dictate market direction. Emkay Global Financial Services estimates that a $10 per barrel rise in crude oil prices results in a 35 basis point increase in India's annualised inflation.