How Strait of Hormuz Closure Exposed India's Energy Vulnerabilities
The recent closure of the Strait of Hormuz, triggered by regional conflict, disrupted a vital maritime route that carries approximately one-fifth of global oil supplies. Between February 27 and the peak on March 31, Brent crude prices surged 63.3 per cent. Global natural-gas futures rose 16.7 per cent, while wheat, sugar, corn, and soybean prices increased by 12.9 per cent, 11 per cent, 8.7 per cent, and 5 per cent respectively. These figures illustrate the cascading effects of upstream supply shocks on commodity markets.
India, which imports more than 88 per cent of its crude oil requirements, was particularly exposed. Before the war, around 40 per cent of India's crude imports passed through the Strait of Hormuz. The dependence was even greater for natural gas. India imports approximately 60 per cent of the liquefied petroleum gas (LPG) it consumes, with 90 per cent of those imports travelling through Hormuz. Similarly, the strait accounted for 55-60 per cent of India's liquefied natural gas (LNG) imports, which supply several fertiliser plants, city-gas networks, and industrial consumers.
The blockade created both price and supply shocks. India's crude imports fell 13 per cent between February and March, while crude inventories declined about 15 per cent after the war began. In April, crude-import volumes were 4.3 per cent lower year-on-year, but the amount paid for them surged 52.3 per cent. This captures the peculiar burden of an oil shock that leads to stagflation—a combination of rising prices and slowing economic growth.
Gas supplies proved harder to replace. LPG imports fell to nearly half their February level, while domestic LPG production declined around 10 per cent from its March peak. LNG imports contracted 29.6 per cent year-on-year in April. Qatar, which had supplied India with an average of 1 million tonnes of LNG each month in 2025, supplied virtually nothing during March and April. Substitution required longer routes and higher procurement costs.
These disruptions quickly entered the domestic economy. April wholesale inflation rose to 8.3 per cent, with fuel-and-power inflation reaching 24.7 per cent and crude-petroleum inflation 88.1 per cent. The merchandise trade deficit widened from $20.7 billion in March to $28.38 billion in April. Consumer inflation remained relatively contained because retail petrol and diesel prices did not fully reflect the increase in crude costs. This insulation, however, transferred part of the burden from consumers to oil-marketing companies and the government.
The rupee weakened from roughly Rs 91 per dollar immediately before the war to a record low near Rs 97. Foreign-exchange reserves declined from a record $728.5 billion on February 27 to $681.6 billion by June 5, a 6.4 per cent depletion. The crisis confronted the Reserve Bank of India (RBI) with an uncomfortable policy trilemma. Raising interest rates to contain imported inflation would have weakened domestic demand and jeopardised India's strong growth momentum. Defending the rupee through sustained dollar sales would have depleted foreign-exchange reserves. Yet inaction risked allowing higher energy, freight, and input costs to spread across the economy.
A durable reopening of the strait relaxes these constraints. Lower crude prices reduce India's import bill and inflationary pressures, support the rupee, and give the RBI greater freedom for monetary policy. The episode, however, exposed how quickly a distant maritime disruption can constrain Indian economic policy. The reopening will lower prices and restore supplies, but depleted inventories, replacement contracts, and delayed inflation pass-through will persist. Broader sourcing from Russia, the Americas, and Africa can reduce dependence on any single route. Long-term, adoption of renewable electricity, storage, electric mobility, biofuels, and alternative industrial feedstocks would further insulate India from such shocks.
