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Just four commercial vessels crossed the Strait of Hormuz on Sunday, according to LSEG shipping data, highlighting how quickly one of the world’s busiest energy corridors can slow during a geopolitical crisis.
While one day of reduced traffic does not amount to a supply shock, economists say the real risk lies in what happens if the slowdown persists. If shipping through the Strait of Hormuz remains severely disrupted for 30 days, the consequences could extend far beyond the Gulf, raising India’s import bill, fuelling inflation and complicating the Reserve Bank of India’s (RBI) policy outlook.
The latest shipping data comes as military hostilities between the United States and Iran
intensified in West Asia. LSEG data showed only four vessels transited the strait on Sunday, down from eight the previous day. At least three oil products tankers and one Very Large Crude Carrier (VLCC) entered the waterway since Friday to load crude. Notably, no liquefied natural gas (LNG) tanker has been seen transiting the strait since Thursday.
The Strait of Hormuz handles nearly one-fifth of global oil consumption and a significant share of the world’s LNG trade, making it the single most important maritime chokepoint for global energy markets.
India’s oil imports would become costlier
India imports more than 85 per cent of the crude oil it consumes, with a substantial share sourced from Gulf producers such as Iraq, Saudi Arabia, the United Arab Emirates and Kuwait. Nearly all these exports pass through the Strait of Hormuz.
If vessel movements remain constrained for weeks, oil-producing nations may continue pumping crude, but getting those barrels to customers would become increasingly difficult. Fewer tankers, longer waiting times and higher insurance costs would tighten supplies in the global market and drive up benchmark crude prices.
Brent crude has already
climbed to around $91 a barrel amid escalating tensions. Analysts warn that a prolonged disruption could push prices well above the $100 mark if exports from the Gulf remain constrained.
Although India has diversified its crude purchases by sharply increasing imports from Russia in recent years, Gulf producers continue to account for a significant share of its energy imports, leaving the country exposed to disruptions in Hormuz.
LNG supplies could tighten
The shipping slowdown is also raising concerns over natural gas supplies.
Qatar, one of the world’s largest exporters of LNG and a key supplier to India, ships almost all its cargo through the Strait of Hormuz. The absence of LNG tankers in recent days suggests the gas trade is already facing disruptions.
For India, higher LNG prices would increase costs for industries, city gas distributors and power producers. Fertiliser manufacturers, which rely heavily on natural gas as a feedstock, would also face higher input costs.
Fertiliser subsidy burden may rise
Any sustained increase in natural gas prices could have a knock-on effect on India’s fertiliser sector.
The country imports fertilisers as well as fertiliser raw materials from the Gulf. Rising LNG prices would make urea production more expensive, potentially forcing the government to either increase fertiliser subsidies or pass on some of the higher costs.
That could put additional pressure on the government’s finances while also affecting agricultural input costs.
Freight and insurance costs would surge
Even if energy supplies continue flowing, shipping costs are likely to increase sharply.
War-risk insurance premiums for vessels entering the Gulf typically rise during periods of conflict. Shipping companies may also demand higher freight rates to compensate for security risks and delays.
The result would be higher transportation costs for crude oil, petrochemicals, chemicals and other imported commodities. Those additional costs would eventually feed into prices paid by businesses and consumers.
Inflation risks would return
Higher energy costs have historically been one of the biggest drivers of inflation in India.
More expensive crude oil raises transportation costs across the economy, increasing prices for manufactured goods and services. Higher LNG and fertiliser costs could also eventually influence food inflation.
While the government may attempt to cushion consumers by adjusting fuel taxes or asking state-run oil marketing companies to absorb some of the increase, sustained elevated oil prices would eventually feed into retail inflation.
RBI may have less room to support growth
A prolonged energy shock would also complicate monetary policy.
Higher oil prices widen India’s current account deficit by increasing the country’s import bill. That, in turn, tends to weaken the rupee, making imports even more expensive and adding to inflationary pressures.
If inflation begins moving away from the RBI’s target, the central bank could find it harder to lower interest rates or maintain an accommodative policy stance, even if economic growth slows.
The RBI may also have to step up intervention in the foreign exchange market to curb excessive volatility in the rupee.
India has stronger buffers than before
India is better positioned than during previous Gulf crises.
The country has expanded its strategic petroleum reserves, diversified crude sourcing through increased purchases from Russia and maintained healthy foreign exchange reserves that can help absorb temporary external shocks.
However, these buffers cannot fully offset a prolonged disruption in one of the world’s most critical energy corridors.
For now, Sunday’s shipping data offers only a snapshot of a rapidly evolving conflict. But if four vessels crossing the Strait of Hormuz each day were to become the norm for an entire month, the impact would likely extend well beyond global shipping lanes, affecting India’s energy security, inflation outlook, government finances and monetary policy.
With inputs from agencies.
