Why in News?

Iran’s Parliament has approved a proposal to close the Strait of Hormuz, pending a final decision by the Supreme National Security Council, following US strikes on Iranian military sites. While previously seen as unlikely, the threat now appears serious.

What’s in Today’s Article?

• Strait of Hormuz
• Significance of the Strait of Hormuz
• Iran to Block the Strait of Hormuz
• India’s Preparedness Amid Strait of Hormuz Tensions

Strait of Hormuz

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• The Strait of Hormuz is a narrow waterway that connects the Persian Gulf with the Gulf of Oman, eventually leading to the Arabian Sea.
• It serves as a crucial maritime passage for oil-exporting countries like Iran, Saudi Arabia, and the UAE. It handles a significant portion of the world’s oil trade.
• Its location in the territorial waters of Iran and Oman adds to its geopolitical sensitivity.
• Geographic Vulnerability
  • At its narrowest, the strait is just 33 km wide, with a 3 km wide shipping lane in each direction.
  • This limited space makes it highly vulnerable to blockades or attacks on passing vessels.

Significance of the Strait of Hormuz

• The Strait of Hormuz is the world’s most important oil and LNG transit route.
• In 2024–25, over 25% of global seaborne oil trade and 20% of global oil and petroleum consumption passed through it.
• Additionally, 20% of global LNG trade, mainly from Qatar, also transited the strait.
• No Sea Route Alternatives
  • Geographically, there is no direct sea route alternative to bypass the Strait.
  • Any disruption would severely affect global oil and gas flows, causing sharp price hikes and broader inflationary impacts.
• Limited Overland Alternatives
  • Saudi Arabia and the UAE have overland pipelines—the 5 million bpd East-West pipeline and the 1.8 million bpd Fujairah pipeline, respectively.
  • However, these are insufficient compared to the 20 million bpd flow through Hormuz.
• Higher Shipping Costs
  • Perceived risks in the region increase insurance premiums and security costs, making global shipping more expensive and further impacting global trade.

Iran to Block the Strait of Hormuz

• Blocking or disrupting the Strait of Hormuz could involve laying sea mines, missile or bomb attacks on passing ships, detaining vessels, or launching cyberattacks on maritime systems.
• Strategic and Diplomatic Constraints for Iran
  • Despite repeated threats, Iran has never actually closed the Strait, even during wartime.
  • Experts say such action would harm Iran itself, especially its oil exports to China—its main customer—and strain recent diplomatic gains with Saudi Arabia and the UAE.
• Global Consequences of a Blockade
  • A blockade would not only disrupt global energy markets, especially affecting China (which sources 47% of its seaborne crude from the Gulf), but would also provoke a strong military response, likely from the US Fifth Fleet.

Impact on India

• India, the third-largest crude oil consumer, relies on imports for over 85% of its oil and about 50% of its natural gas.
• Nearly 47% of India’s May crude imports transited through the Strait, making it a lifeline for supplies from West Asian countries like Iraq, Saudi Arabia, UAE, Qatar, and Oman.
• Price Volatility Is the Main Risk
  • While India has diversified oil sources—including Russia, the US, Africa, and Latin America—a blockade of Hormuz would disrupt global supply chains.
  • This, in turn, will cause oil and gas prices to spike, even if availability is not immediately compromised.
  • A price surge would impact trade deficit, forex reserves, rupee value, and inflation, stressing the overall economy.
• China’s Shift Could Intensify Demand Pressure
  • If Iran’s exports to China are blocked, Beijing may turn to other suppliers, increasing competition and further inflating prices, impacting India’s energy costs and broader economic stability.
• Ripple Effects on Freight and Refining Margins
  • Disruptions would lead to higher freight rates and tanker insurance premiums, shrinking refinery margins across Asia, according to S&P Global’s analysis.

India’s Preparedness Amid Strait of Hormuz Tensions

• Due to rising tensions in the Middle East, oil prices could temporarily rise to USD 80 per barrel, according to analysts.
• India’s Key Energy Routes Remain Largely Unaffected
  • Russian oil reaches India via the Suez Canal, Cape of Good Hope, or Pacific routes, bypassing the Strait of Hormuz.
  • Qatar’s LNG supplies to India also do not rely on the Strait.
  • Other LNG sources like Australia, Russia, and the US remain unaffected.
• Diversification and Strategic Reserves Offer Cushion
  • India can:
    • Tap into its strategic oil reserves (9–10 days' worth of imports)
    • Increase imports from alternate suppliers like the US, Nigeria, Angola, and Brazil—though at higher freight costs
• Potential Government Measures to Control Inflation
  • To offset rising domestic prices, the government may consider price subsidies, especially for diesel and LPG, to curb inflationary pressure.