Oil, freight, inflation: US move at Hormuz could ripple across India’s economy

Brent crude jumped as much as 9.1%, trading close to $102 per barrel, after Washington signalled it would restrict vessels passing through Hormuz that had called at or were headed to Iranian ports. The move threatens to choke one of the last steady oil flows from the Persian Gulf, while Tehran’s warning to target vessels and ports has heightened fears of a wider regional disruption.

For India, which imports nearly 85–88% of its crude oil, the implications are immediate and far-reaching.

What do industry observers say?

“India will continue to face challenges sourcing crude and refined products from the Strait of Hormuz if the latest blockade materializes, given its heavy reliance on Persian Gulf supplies,” said Janiv Shah, Vice President, Commodity Markets – Oil at Rystad Energy.

Even if supplies are rerouted, the transition is unlikely to be smooth. “Switching crude types is not seamless and could lead to imbalances in fuel output, creating additional pressure on product supply,” Shah said, adding that sourcing from alternative regions would keep “physical prices elevated relative to futures… ultimately worsening an already tight global fuel market rather than easing it.”

The more immediate risk, however, lies in the global supply squeeze. “A US naval blockade of the Strait of Hormuz would have minimal direct impact on India’s immediate crude flows but the second order effects could be significant,” said Nikhil Dubey, Senior Refining Analyst at Kpler.

He pointed to the potential loss of Iranian crude from global markets — estimated at 1.6 to 2 million barrels per day — as a key trigger for higher prices. “In a blockade scenario, these volumes will dry up from the market, which will tighten overall supply further and push crude prices higher, directly increasing India’s import bill,” Dubey said.

Risks beyond crude availability

The risks extend well beyond crude availability. Escalation in the region could disrupt other critical shipping routes. “Any escalation involving Iran can also impact chokepoints such as the Bab el Mandeb Strait,” Dubey said, noting that a growing share of India’s crude imports — particularly from Russia and Saudi Arabia’s Red Sea ports — now flows through this corridor.

A disruption here would force tankers to take longer routes. “Any potential disruption… would force vessels to reroute via the Cape of Good Hope, leading to longer voyage times and an increase in freight costs,” he added.

Shipping markets are already reacting to the uncertainty. “Policy intent appears narrowly framed targeting Iran-linked crude… however, shipping markets are pricing in wider risk,” said Harshraj Aggarwal, Lead Analyst at YES Securities.

He said war-risk insurance premiums have surged sharply, vessel movement has slowed, and early signs of disruption are emerging beyond sanctioned cargo. “Given the strategic importance of the Strait of Hormuz, even selective enforcement can spill over into generalized trade disruption,” Aggarwal said.

India’s exposure remains structurally high. While crude sourcing has diversified, dependence on Gulf-linked routes continues to shape risk. LPG remains particularly vulnerable, with supply chains heavily tied to the Hormuz corridor.

The Strait itself remains one of the most critical energy arteries in the world. “The Strait of Hormuz is a crucial maritime route carrying 20% of global crude oil supply,” said Swathi Seshadri, Energy Specialist at IEEFA.

She warned that the impact is already spreading beyond energy markets. “Increased cost of aviation fuel and the stress on the cooking gas supplies are some of the outcomes… The chemical and petrochemical industry… plastics, fertilisers, pharmaceutical industries… have seen supply chain disruptions,” she said.

The fallout is now visible across sectors. “Fundamentally almost every aspect of life is impacted by the disrupted supply chains,” Seshadri said, adding that “over the next few months we anticipate prices of all goods… increasing prices.”

India’s dependence on imported energy amplifies the risk. “India relies on imports for nearly 88% of its crude oil consumption,” said Rahul Chopadekar, VP Marketing at Rubix Data Sciences.

He highlighted the concentration of supply. “Five key Gulf nations… account for roughly 46% of these imports,” he said, while Qatar and the UAE together contribute about 57% of LNG imports, valued at around $8.4 billion.

Logistical constraints limit quick diversification. “Cargo shipments from the US can take upwards of 30 days to reach India, compared to just 3–4 days from key Gulf suppliers,” Chopadekar said, underscoring the challenge of replacing Gulf supplies in the short term.

Even without a physical disruption, costs are already rising. “What we are seeing is effectively a ‘geopolitical tax’ on trade,” he said.

He quantified the impact: “Every USD 10 per barrel increase in crude prices raises India’s annual import bill by roughly USD 13–14 billion,” putting pressure on the current account deficit and the rupee.

Aggarwal said the financial impact could be immediate. “Even without physical disruption, elevated risk premiums can materially inflate India’s import bill,” he said, pointing to a sharp rise in insurance and freight costs.

Sourav Mitra, Partner at Grant Thornton Bharat, said even targeted action could trigger wider disruption. “Even a narrowly defined blockade risks spillover disruption… tanker hesitation, congestion, and elevated insurance premiums can affect broader shipping flows,” he said.

The cumulative effect could tighten domestic fuel and petrochemical markets and raise costs across sectors. “In the near term, India can absorb disruptions… but a prolonged shock would drive higher logistics costs and tighten domestic fuel and petrochemical markets,” Aggarwal said.

With crude breaching $100, supply routes under stress and shipping costs rising, the Hormuz flashpoint is rapidly emerging as a critical stress test for India’s energy security — one that could ripple through fuel prices, supply chains and inflation in the months ahead.