Context & Trigger
- The Iran-Israel conflict has escalated, leading to fears of global oil supply disruptions.
- Result: Brent crude futures jumped ~9% on June 13, reaching $78.50/barrel intraday (a five-month high).
Relevance : GS 3(Energy , Economy)
Role of the Strait of Hormuz
- Critical maritime chokepoint connecting the Persian Gulf to the Arabian Sea.
- ~20 million barrels/day of oil pass through it – ~25% of global supply.
- Iran has repeatedly threatened to block the strait, triggering global market panic.
- Disruption = delayed shipments, higher insurance + transport costs → rising oil prices.
Global Impact of Closure Threats
- Affects key oil exporters: Saudi Arabia, UAE, Kuwait, Iraq, Qatar, and Iran itself.
- 84% of oil and 83% of LNG via Hormuz go to Asian countries, including India and China.
- Alternatives (like rerouting) exist but are costlier and slower.
Global Supply Outlook
- IEA (June 2025 report): Oil markets “well supplied“ if no major disruptions.
- Demand ↑ by 720 kb/d; Supply ↑ by 1.8 mb/d → reaching 104.9 mb/d.
- Inventory build-up offers short-term buffer (93 million barrels in May).
- However, geopolitical risks remain high, especially if Hormuz is blocked.
Is Iran’s Production a Factor?
- Iran’s direct impact is limited due to U.S. sanctions.
- Its main buyer is China, who enjoys discounted Iranian crude.
- Hence, the real threat is Iran disrupting global flows, not its own export capacity.
India’s Exposure & Preparedness
- India imports ~80% of its oil → highly vulnerable to price shocks.
- No direct imports from Iran currently (due to U.S. sanctions).
- However, global price spikes = costlier imports for India.
- Diversification efforts:
- Union Petroleum Minister Hardeep Singh Puri stated India has widened its oil import basket.
- But price volatility remains a concern.
Economic Implications for India
- Short-term spike not alarming: Prices rose from “benign levels”.
- ICRA’s GDP forecast (6.2%) not affected yet.
- But prolonged high prices could:
- Hurt corporate profitability,
- Delay private investment (capex),
- Increase import bills and inflation, possibly impacting fiscal deficit.
Strategic Takeaways
- India must:
- Strengthen strategic petroleum reserves (SPRs).
- Deepen energy diplomacy (esp. with Gulf & alternative suppliers).
- Push for domestic production (exploration, renewables) to enhance energy security.
Conclusion
- The Iran-Israel war has reignited oil market fears, mainly via Hormuz threats.
- India remains vulnerable to external energy shocks despite diversification.
- A watchful energy strategy is crucial to safeguard economic stability and trade resilience amid global uncertainties.
