Global Oil Markets on Edge as Strait of Hormuz Faces Potential Closure

As tensions escalate between the United States, Israel, and Iran, the world is watching the Strait of Hormuz, one of the most important chokepoints for global oil trade. Recent reports suggest that Iran has claimed to close the Strait, although it is not yet clear whether this is a full closure. Even partial disruptions, however, could have major consequences for energy markets and countries that rely heavily on Middle East oil, including India.

The Strait of Hormuz lies between Iran and Oman, connecting 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 barely three kilometres in each direction. Despite its size, about 20 per cent of the world’s oil supply passes through it daily, roughly 20–21 million barrels of crude, condensates, and fuels. The strait is also a key route for liquefied natural gas, especially from Qatar.

Most of the oil exports from OPEC countries such as Saudi Arabia, Iraq, Kuwait, the UAE, and Iran flow through the strait, primarily to Asia. Even the threat of disruption has already caused Brent crude prices to spike. Analysts warn that a prolonged closure could push oil above 100 dollars per barrel, with extreme scenarios reaching 120–150 dollars. Shipping disruptions, higher insurance costs, and delays in tankers have already begun to choke supplies.

Iran’s strategic position gives it significant leverage. The country holds the world’s fourth-largest proven oil reserves and has the military capabilities, including missiles, drones, submarines, and fast attack vessels, to disrupt traffic through the strait. However, a full closure would also hurt Iran’s own economy, halting its exports and potentially straining relations with key buyers like China. Analysts say a complete blockade would likely be a last-resort measure in case of an all-out war, but even partial disruptions could have far-reaching economic impacts.

India is particularly vulnerable. The country imports around 55 per cent of its crude from the Middle East, totalling about 2.7 million barrels per day. Unlike China, which holds up to six months of crude in storage, India’s effective reserves could cover only 20–25 days under current conditions. A disruption in the Strait could result in higher fuel prices, inflation, a widened trade deficit, currency fluctuations, and increased pressure on government finances. While India has diversified some of its oil imports to countries like Russia, Middle East crude remains central to its energy needs.

The impact would not be limited to India. Asia imports nearly 90 per cent of Middle Eastern oil, with Japan and South Korea also heavily dependent, although they have larger strategic reserves. Even Europe and the United States, which rely less directly on Gulf oil, would feel the effects as global oil prices rise. Shipping costs have already surged, with freight rates for crude carriers doubling and LNG shipping costs jumping over 40 per cent. Insurance premiums for tankers are increasing, and container lines are suspending bookings to Gulf ports.

Historically, the Strait of Hormuz has been a flashpoint. During the Iran-Iraq War in the 1980s, both sides targeted oil tankers in the “Tanker War.” In 2012, Iran threatened to block the strait over sanctions, and more recently, tankers have been attacked or seized amid rising tensions. However, a full closure today would be unprecedented and could trigger a global energy crisis.

With oil markets forward-looking, even the threat of a prolonged disruption is enough to create immediate pressure. Countries and traders are now closely monitoring developments, aware that instability in this narrow stretch of water could ripple across the world’s energy supply, economies, and financial markets.