What If the Strait of Hormuz Shuts Down? A Global Oil Shock That Could Hit India Hard

As tensions escalate in the Middle East amid the ongoing conflict involving the United States, Israel, and Iran, global markets are bracing for a scenario once considered unthinkable - the closure of the Strait of Hormuz, the world's most critical oil chokepoint.

The mere threat of disruption has already rattled energy markets. Brent crude prices have surged sharply in recent days, and analysts warn that a prolonged closure could push oil prices beyond $100 per barrel, with extreme projections ranging from $120 to $150 if supply flows are severely restricted.

The Strait of Hormuz lies between Iran and Oman, linking the Persian Gulf to the Gulf of Oman and the Arabian Sea. At its narrowest point, it is just 33 kilometres wide, with shipping lanes only about 3 kilometres wide in each direction.

Yet this narrow corridor carries enormous weight in the global energy system. Roughly 20% of the world's crude oil and petroleum liquids, around 20 to 21 million barrels per day, pass through it. It is also a key transit route for liquefied natural gas (LNG) exports, particularly from Qatar.

Most oil exports from OPEC nations such as Saudi Arabia, Iraq, Kuwait, the UAE, and Iran travel through these waters, primarily bound for Asian markets. Nearly 90% of Middle Eastern oil exports go to Asia, making countries such as India, China, Japan, and South Korea especially vulnerable.

Oil markets are forward-looking. Traders price in risk long before an official blockade is declared. Even without a formal closure, disruptions such as halted tankers, cancelled insurance coverage, and surging freight costs can immediately drive up prices.

Shipping costs are already climbing. Freight rates for Very Large Crude Carriers (VLCCs) have reportedly doubled, while LNG shipping rates have jumped more than 40%.

Insurance premiums for vessels transiting the Gulf have soared, and major container lines are suspending bookings to certain Gulf ports.

Iran holds the world's fourth-largest proven oil reserves, estimated at around 170 billion barrels, and is a key OPEC producer. Beyond its own exports, its geopolitical influence stems largely from its location along the Strait.

Tehran has repeatedly warned that it could shut the Strait in retaliation against military aggression. It possesses capabilities, including sea mines, fast-attack boats, submarines, drones, and missile systems, that could disrupt maritime traffic.

However, analysts caution that a full closure would also severely damage Iran's own economy. It would halt Iranian exports and risk alienating key buyers such as China. Most experts believe such a move would be a last-resort option in an all-out war scenario.

For India, the stakes are particularly high.

India sources roughly 55% of its crude oil imports from the Middle East, amounting to around 2.7 million barrels per day. While New Delhi has diversified its oil purchases in recent years, increasing imports from Russia and other suppliers, Middle Eastern crude remains central to its energy mix.

India's strategic petroleum reserves are relatively limited. The government has stated that total storage capacity could cover about 74 days of demand. Still, refining sources suggest that effective inventories under current conditions may provide only 20 to 25 days of operational cover.

By contrast, countries like Japan and South Korea hold more than 200 days of strategic reserves, and China is believed to maintain up to six months' worth of crude in storage.

A prolonged disruption would force India to compete aggressively in global markets for alternative crude supplies, likely at significantly higher prices.

Even regions less dependent on Gulf crude would not be insulated. Oil is globally priced, meaning instability in one region raises costs everywhere. Europe and the United States may import less Gulf oil directly, but they would still feel the impact through higher global prices.

If the conflict drags on, global supply chains could experience turmoil reminiscent of past oil shocks. Elevated freight rates, higher insurance costs, and supply bottlenecks could ripple through industries worldwide, from transportation to manufacturing.

For now, the Strait of Hormuz remains open. But in today's volatile geopolitical environment, the possibility of disruption is enough to unsettle markets.

The corridor may be only 33 kilometres wide, but its importance to global energy security is immeasurable. Any sustained interruption would not just be a regional crisis; it would be a worldwide economic shock.

As tensions simmer, governments and markets alike are watching the Strait closely, aware that what happens in this narrow passage of water could reshape the global economy overnight.