Half of India’s oil imports at risk amid threat of Strait of Hormuz blockade

An extended conflict in the Middle East after the US entered Israel’s showdown with Iran this week may put at risk close to half of India’s crude oil imports—around 45–50%—that flow through the Strait of Hormuz, the narrow but vital energy corridor connecting the oil-rich Gulf region to Asia.

Concerns are mounting over potential disruptions to this key maritime route, which handles nearly 20% of the world’s oil and liquefied natural gas (LNG) trade.

India’s oil import dependence remains high, with nearly 90% of its crude needs met through imports.

According to ICRA’s June assessment, a significant portion of this—especially from countries like Iraq, Saudi Arabia, Kuwait, and the UAE—passes directly through the Strait of Hormuz.

The region also accounts for over half of India’s LNG imports, primarily from Qatar and the UAE, which are highly exposed to disruptions along this route.

Since the conflict began earlier this month, crude oil prices have surged from $64 to $75 per barrel. Iranian production, around 3.3 million barrels per day (mbd), of which 1.8–2.0 mbd is exported, has already faced reported hits to oilfields, storage hubs, and refining infrastructure.

If tensions escalate further, or the Strait itself is blocked, it could result in a massive disruption in energy flows to Asia—particularly to China, India, Japan, and South Korea, which together consume over 65% of the oil routed through this channel.

Iranian Parliament approved the closing of the Strait of Hormuz, though a final decision will be taken by the Supreme National Security Council, Iran’s Press TV reported on Sunday.

Iran’s foreign minister Seyed Abbas Aragchi, when asked by reporters about Hormuz, said simply that “a variety of options are available with Iran”.

The US struck three Iranian nuclear sites on Sunday, marking a significant escalation in the ongoing war between Iran and Israel.

Dubbed Operation Midnight Hammer, 125 US military aircraft including seven B-2 stealth bombers, were involved in the strike that targeted three nuclear facilities-Fordo, Natanz and Isfahan.

Among the range of retaliation options Iran has, the most discussed is the threat to block the Strait of Hormuz.

India has limited fallback options in case of a blockade or sustained volatility in the region.

While Saudi Arabia and the UAE possess some pipeline redundancy with a combined spare capacity of around 2.5–3 mbd, this remains insufficient to fully offset any prolonged closure of the Strait, ICRA said.

The economic consequences for India could be significant.

ICRA estimates that a $10 per barrel increase in average crude prices during FY26 would increase the country’s net oil import bill by $13–14 billion, widening the current account deficit (CAD) by 0.3% of gross domestic product (GDP).

The current account deficit for FY26 is already projected to rise to 1.2–1.3% of GDP (around $50–52 billion), up from an estimated 0.9% in FY25.

Natural gas prices are also likely to spike. About 54% of India’s LNG imports are routed through the Strait of Hormuz, primarily under long-term contracts with Qatar.

Disruptions could lead to a sudden dependence on spot cargoes, raising prices sharply for city gas distribution, fertilisers, petrochemicals, and gas-based power producers.

LNG freight rates and tanker availability may also come under pressure if the crisis persists.

For the oil and gas sector, the impacts are mixed. While upstream companies are expected to maintain profitability and capex plans at crude levels between $70–80/bbl, downstream players face tighter margins.

ICRA projects marketing margins for petrol and diesel could moderate to ₹6–8/litre, while LPG under-recoveries could widen by ₹160 billion compared to FY2025.

While ICRA does not expect an immediate revision to India’s GDP growth forecast of 6.2% for FY2026, it warns that a sustained rise in crude prices or disruption in energy flows could hurt corporate profitability and delay private capex recovery—posing downside risks to the outlook.