Strait of Hormuz at Risk: How a US-Iran Conflict Could Impact India

The recent US attack on Iran’s nuclear facilities has created new challenges for Asian countries. Iran’s parliament has approved a proposal to close the Strait of Hormuz, a key route for global oil shipments. The final decision will be made by Iran’s Supreme National Security Council. But even the possibility of such a move can affect a country like India, which depends heavily on imported oil.

Here’s a look at why this matters for India, both in the short term and in the longer run.

What is the Strait of Hormuz, and Why Does It Matter?

The Strait of Hormuz is a narrow waterway between Iran and Oman through which about 20 percent of the world’s oil passes. Nearly all of India’s oil imports from the Gulf, including from Saudi Arabia, Iraq, and the UAE, pass through this route.

According to the U.S. Energy Information Administration (EIA), nearly 21 million barrels of oil moved through the strait each day in 2024. Of this, around 84 percent was transported to Asian countries like China, India, Japan, and South Korea.

Even though India no longer buys oil from Iran due to sanctions, it still depends heavily on this corridor. If Iran closes the Strait, even temporarily, global oil supply could tighten and prices could rise sharply.

India’s Oil Dependence

• India imports around 89 percent of its crude oil, and a large share of these imports comes through the Strait of Hormuz.
• About 40 percent of the oil India imports comes from Middle Eastern countries, mostly via this route.
• If this route is blocked, it would lead to higher transportation and insurance costs and cause delays.
• Iran is also one of the world’s major oil producers. Geopolitical tensions involving Iran could disrupt global oil supply, pushing prices higher. For India, which relies heavily on crude imports, this would widen the import bill and increase pressure on the rupee.
• According to past estimates, if crude oil rises by $10, it impacts the economy in two ways. GDP growth tends to slow by around 0.3 to 0.4 percent, while inflation (CPI) increases by about 0.4 percent.

Short-Term Impact: Oil Prices, Rupee, and Inflation

Brent crude jumped over 3 percent after the US strikes in June 2025. If the situation escalates, analysts warn that prices could move beyond $80 per barrel. This would have the following effects on India:

• Rupee depreciation due to higher dollar demand for oil payments
• Rising inflation, especially in fuel, transport, and food prices
• Pressure on the RBI, which may need to choose between controlling inflation and supporting growth

India’s Preparedness: Some Buffer, But Still Exposed

India has taken steps in recent years to reduce its dependence on any one region. The country has increased oil purchases from Russia and the US, and built up strategic oil reserves.

However, if the Strait of Hormuz is blocked for an extended period, rerouting oil shipments will still lead to delays and higher costs. There is also limited spare capacity among alternative suppliers.

Has This Happened Before?

In 2019, tensions between the US and Iran led to several tanker attacks in the Gulf, raising fears of a full-blown conflict. Oil prices rose temporarily, but the strait remained open.

That episode showed that even if the Strait is not closed, markets react quickly to the risk. India had reduced purchases from Iran and built up stocks to manage the situation.

Sector Impact: Which Companies Could Be Affected

Some sectors in India are more vulnerable to a spike in oil prices:

• Aviation: Airlines like IndiGo and Air India face higher fuel costs.
• Oil Marketing Companies: IOCL, BPCL, and HPCL may see margins come under pressure if fuel prices are not fully passed on.
• Fertilizers: Companies like Chambal Fertilisers, which use gas as input, may see cost inflation
• Paints and Chemicals: Firms like Asian Paints and Pidilite could face higher raw material costs
• Logistics: Road and freight operators may see weaker margins due to rising diesel prices.

Meanwhile, some domestic gas producers and renewable energy firms may see relatively lower impact or even investor interest as energy prices remain volatile.
Also read: Israel-Iran Conflict and Why it can impact Indian Stock market

What to Watch Now

Iran has not yet closed the strait, and doing so would also hurt its exports. But even the threat is enough to create uncertainty.

For India, the key risks are:

• Higher oil prices and a weaker rupee
• Rising inflation and limited room for policy support
• Pressure on companies exposed to crude oil

Markets will be watching how Iran responds, how global oil prices move, and whether India can further diversify its imports in the coming weeks.

Sources: Reuters, U.S. Energy Information Administration, Ministry of Petroleum and Natural Gas, RBI, Bloomberg

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