$80 per barrel: 4 ways Strait of Hormuz closure will impact India, and what the Govt can do about it

Time of India

3 hours ago

The war
against Iran continues to escalate, with the United States getting directly
involved in a bombing campaign against the country's nuclear facilities.
President Trump further escalated his rhetoric on June 22 with him claiming
that he's aiming for a full-scale regime change in Iran, which had led to fears
about a long-drawn out conflict, something vice-President JD Vance ended up
directly addressing in an interviews with NBC News's Meet the Press.
There is no
credible evidence of Iran developing nuclear weapons, but even without such an
arsenal, Iran's regime has powerful economic leverage at its disposal, namely
its control over the Strait of Hormuz. Should the regime blockade this vital
trade route, mass economic disruption is sure to follow, with India being no
exception.
Here are 4
ways a blockade might disrupt the Indian economy, and what the Govt can do
about it.
1. India imports 40% of its oil from
the Middle East
40% of
India's oil supply is imported from Middle-Eastern countries such as Kuwait,
Saudi Arabia, Iraq and the United Arab Emirates. All the trades routes for
these countries pass trough the Strait of Hormuz, so a blockade will disrupt the
oil supply from all these regions.
What India can do: Diversify its supply focus to alternative
countries such as Russia, and Qatar.
2. Oil
prices may rise to $80 per barrel
🚨 🇺🇸 🇮🇷: BREAKING: IRANIAN PARLIAMENT HAS VOTED TO CLOSE STRAIT OF HORMUZ.- 20% of the Worlds oil supply travels through this area. - Expect major oil price spike, major supply shortages, and inflation reverberating throughout the US and oval economy. pic.twitter.com/JJ7pDXnGMn
The Strait
of Hormuz blockade's supply disruptions are likely to raise global oil prices
beyond the current benchmark of $77. Prices can go up to $80 per barrel, or
even $90, per analysts like Goldman Sachs, should the situation continue to
escalate.
What India can do: Provide oil and petroleum subsidies to cushion the
impact of short-term fluctuations and prevent the costs from being passed down
to the consumer.
3. Increased diplomatic dependence on
Russia and Qatar
While
alternative suppliers such as Russia and Qatar provide a large proportion of
India's oil already, the Strait of Hormuz blockade will risk increasing India's
dependence on them. India's trade relations with Russia have already come under
scrutiny thanks to the war in Ukraine, so it may be prudent to diversify the
alternatives at the country's disposal.
What
India can do: Lean
further into suppliers from the United States, West Africa and Latin America,
even if those suppliers end up more expensive.
4. Supply chain disruptions and delays
We have been closely monitoring the evolving geopolitical situation in the Middle East since the past two weeks. Under the leadership of PM @narendramodi Ji, we have diversified our supplies in the past few years and a large volume of our supplies do not come through the Strait…
Even if adequate
trade deals remain in place, a major blockade will still have cascading effects
and lead to broader disruptions in the crude oil supply chain. An escalating
war against Iran may lead to hard-to-anticipate delays in oil shipments, not to
mention the disruptions that inevitably arise when India reworks its suppliers.
What
India can do: Tap
into its strategic petroleum reserves to offset short-term supply disruptions
and ensures the country never suffers from an extended petroleum shortage.
Escalating
tensions in the Middle East are bound to disrupt crude oil supply chains for
not just India, but many regions across the world. However, as Union Minister
Hardeep Singh Puri has said, India is already diversifying its suppliers and
reducing its dependence on the contested trade route. With the right steps
towards preparedness, India can weather the imminent disruptions and maintain
its geopolitical strength.