US naval blockade in Hormuz may hit India indirectly: Report
What's the story
The United States's planned naval blockade of the Strait of Hormuz may not have an immediate impact on India's crude oil supplies. However, analysts and industry sources cited by Moneycontrol warn that it could lead to significant "second-order effects." The blockade could shrink global supply and increase freight costs, thereby impacting local prices in India.
Supply impact
Analysts warn of rising import bills for India
Nikhil Dubey, a senior research analyst at Kpler, explained that while the blockade may not directly affect India's crude flows, it could tighten overall supply and push crude prices higher. Iranian exports through Hormuz are mainly going to China. If these volumes dry up due to the blockade, it would further tighten global supply and increase India's import bill.
Shipping disruption
Escalation could disrupt other major shipping routes
Beyond price increases, analysts warn that an escalation of the conflict could affect other major shipping routes. The Bab el Mandeb Strait, another vital shipping route, could be disrupted by Iran-aligned groups from Yemen. This is crucial for India as a larger share of its crude imports now pass through this corridor after the Middle East conflict.
Rerouting costs
Disruption would increase travel time and freight costs
A disruption in the Bab el Mandeb Strait would require vessels to reroute via the Cape of Good Hope. This would increase travel time and freight costs. Saudi Aramco's East-West pipeline and Abu Dhabi National Oil Company's Habshan-Fujairah oil pipeline are currently operating at full capacity to bypass Hormuz due to escalating conflict.
Blockade details
CENTCOM clarifies details of the planned blockade
The US Central Command (CENTCOM) has clarified that the blockade will be enforced against vessels entering or leaving Iranian ports. However, it won't stop vessels from transiting Hormuz to and from non-Iranian ports. This means Indian-flagged vessels stranded in the Persian Gulf are likely to continue their transit via the strait.
Sourcing diversification
India looks to alternative sources for crude, LNG imports
With West Asia's supplies disrupted, India is looking at Brazil, Guyana, Algeria, and the US for crude. For LNG, India may source from Algeria, Russia, and Australia. Recently, India purchased four million barrels of Iranian oil despite US sanctions. Kpler data showed that a large crude carrier reached Paradip port with two million barrels of Iranian oil on April 9, the first since 2019, despite US sanctions.