Syllabus: 

GS2: Effect of Policies and Politics of Developed and Developing Countries on India’s interests, Indian Diaspora.

Context: 

Rising tensions between Iran and Israel last week pushed Brent crude prices up nearly 9%, hitting $78.50/barrel, its highest in five months which may also push up Administered Price Mechanism (APM) gas and New Well Gas (NWG) prices.

More on the News

• Prices slightly eased after reports emerged that Tehran urged Gulf nations to seek U.S. support for a ceasefire. 
• Iran has repeatedly threatened to shut down the Strait of Hormuz, a vital chokepoint for global oil transport. 
• In India, APM gas prices had fallen below the ceiling price in June 2025 for the first time since April 2023, when the Kirit Parikh Committee’s recommendations were implemented as crude oil prices had softened amid tariff tensions and increase in output announced by the OPEC+ nations

Strategic Importance of the Strait of Hormuz and Its Global Trade Implications

• Strait of Hormuz is the chokepoint that connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. 
• The closure of a chokepoint, even if for a temporary period, can translate to potential delays in supply, reduction in traffic and rise in shipping and insurance costs.
• As per the U.S. Energy Information Administration (EIA) the Strait facilitated transportation of an average of 20 million barrels each day (md/d) in 2024. This is equivalent to approximately one-fifth of the global petroleum liquids consumption.
• The Paris-based IEA noted that the Strait of Hormuz carries about one-fourth of global oil exports, serving as a key route for major producers like Saudi Arabia, UAE, Kuwait, Qatar, Iraq, and Iran.
• According to EIA’s estimates, 84% of the crude oil and condensate, alongside 83% of liquified natural gas, transported via the Strait headed to Asian countries in 2024. Primarily, this includes China, India, Japan, and South Korea.

Impact of Rising Crude Oil Prices on India's Economy

A sustained increase beyond current levels could: 

• Negatively impact the profitability of Indian corporations. 
• Further postpone private capital expenditure (capex) due to prolonged uncertainty.
• Potentially lead to a downward revision in ICRA's GDP growth projections for the second half of the fiscal year.
• Lead to an increase in wholesale inflation.

India's main concern lies in how the Strait of Hormuz crisis unfolds. Though India doesn't import crude from Iran but over 80% of its oil is imported. 

Even if direct imports from Iran are minimal, global price spikes due to conflict will raise crude oil import costs which will raise India’s oil import costs.