11 hours ago
Here's New Delhi's game plan to solve the Hormuz riddle
New Delhi is activating an emergency playbook to safeguard its oil supplies, as a fragile truce prevails in West Asia after 10 days of conflict. The strategy involves bypassing the critical Strait of Hormuz in Iranian waters via two pipelines; tapping into the global reserves and portfolios of Abu Dhabi National Oil Co. (Adnoc) and Saudi Arabian Oil Co. (Saudi Aramco); and significantly increasing imports from the US.
The two pipelines, which run east to west across the Arabian peninsula, may be tapped if Iran closes the Strait, a choke point vital for global energy supplies. The first is Adnoc-operated 360-km Habshan-Fujairah strategic oil pipeline with a 1.5 million barrels per day (mbpd) capacity that opens to the Gulf of Oman; and the Saudi Aramco-operated 1,200-km East-West crude oil pipeline with a 5 mbpd capacity that offers access to the Red Sea.
State-run refiners Indian Oil Corp. (IOC), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) are in touch with suppliers Adnoc and Saudi Aramco to use the pipeline route in case of an emergency, the people cited above said on the condition of anonymity.
The shaky ceasefire between Israel and Iran is keeping markets on edge, even as Indian officials express confidence in securing supplies, albeit with potential pricing shifts. After US president Donald Trump declared a ceasefire, Israel accused Iran of breaking it, a claim denied by the latter.
Also read | Mint Primer: Oil shock looms as Iran threatens to shut Strait of Hormuz. What it means for India
Queries sent to the spokespersons of India's petroleum and natural gas ministry, Adnoc, Saudi Aramco, Embassies of UAE and Saudi Arabia in New Delhi, Indian Oil Corp., BPCL, and HPCL on Tuesday early morning remained unanswered. A US Embassy spokesperson in New Delhi directed questions to the Indian government.
Strategic importance
The plan is of strategic importance to India, given that out of the 5.5 million barrels of crude oil that India consumes daily, about 1.5-2 mbpd crosses the Strait of Hormuz. To be sure, the Strait, through which a fifth of the world's oil cargoes passes, remained open even during the years-long Iran-Iraq war in the 1980s.
'Given that India gets a significant portion of its imported oil through the Strait of Hormuz, getting a Plan B is of utmost importance. It needs to be seen what quantum the pipelines would be able to transport, as the quantum supplied on vessels through the sea route is huge. India will have to look at a host of options." said C. Uday Bhaskar, director, Society for Policy Studies.
Given India's dependence on imported crude and the fact that oil comprises about 30% of its total imports (import bill), volatility and elevated prices impact the trade deficit, current deficit and eventually, economic growth. Last week, an Icra report said that for every $10/bbl increase in the average crude oil price in afiscal, net oil imports will rise by $13-14 billion in that year.
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Kabir Taneja, deputy director, strategic studies at Observer Research Foundation said: "India has good relations with both Saudi Arabia and the UAE, and securing more oil would not be a problem; however, transportation is key. And such talks are of strategic importance given that India is heavily dependent on hydrocarbon imports and needs to ensure energy security. India has handled such situations well in the past and should be able to navigate any supply crunch scenario."
Price changes
Indian stock markets ended marginally higher on Tuesday after an initial surge. The BSE Sensex closed at 82,055.11 points higher by 158.32 points or 0.19% from its previous close.
'We are sorted on supplies and there might be some displacement in pricing. Supplies can also come through the Suez Canal and Cape of Good Hope. Then, there are the opportunistic cargoes on the high seas. Iran also needs to keep the Strait of Hormuz open as they don't have any other exit for supplying to China, its main and only buyer," one of the two people cited above said.
Iran currently produces about 3.3 mbpd of crude oil, and exports 1.8-2.0 mbpd. It is yet to act on its threat of closing the strait, a development that could block a fifth of the world's oil cargoes and send oil prices into a spiral.
'A worst-case scenario would be Iran disrupting shipping lanes along the Strait. However, Iran is heavily dependent on the Strait, and this act could impact neighbouring oil producers and global consumers," J.P. Morgan Asset Management wrote in a 16 June report.
Also read | US strike on Iran raises oil shock, capital flow risks for India's economy
However, while India is sorted on supplies, there are concerns on pricing. Crude oil surged to nearly $80 per barrel amid the latest Israel-Iran conflict, before easing on Tuesday after the ceasefire news. At the time of writing the story, the August contract of Brent on the Intercontinental Exchange was trading at $68.96 per barrel, lower by 3.55% from its previous close. Similarly, the August contract of West Texas Intermediate on the NYMEX fell 3.37% to $66.20 per barrel.
'Presently, none of India's crude oil supplies comes through Fujairah located on the Gulf of Oman. It's (Habshan-Fujairah) a strategic pipeline that they will open. Our state-run refiners have already spoken to Adnoc," said one of the two government officials cited above, requesting anonymity.
New options
Experts said discussions to use the pipelines may open up new options for India.
Gaurav Moda, partner and leader for energy with EY-Pantheon India said: "Such engagements will open up avenues for strategic and closure partnership of India with major oil suppliers like Saudi Aramco and Adnoc. Both these companies will see India, not just as a buyer of oil but also as a strategic partner."
With a growing presence in India's energy security architecture, Adnoc is the only company to commit to India's strategic crude oil reserve programme to date, and supplied oil worth $13.86 billion in FY25 to India. Meanwhile, Saudi Aramco is India's third largest crude oil supplier, and sold oil worth $20 billion in FY25 to India. Saudi Aramco also has plans to collaborate on establishing two oil refineries in India; with Saudi Arabia's plan to invest $100 billion in India in sectors including energy, petrochemicals, infrastructure, technology, and fintech.
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'Saudi Aramco will get it through the Red Sea. Our Russian oil supplies also come through the Red Sea route. Our state-run companies have already spoken to them, and a plan is already in place in case the worst-case scenario of Iran closing the Strait of Hormuz ever plays out," one of the two people cited above said on the condition of anonymity.
India imports around 244 million tonne of crude oil annually, accounting for over 85% of its total crude oil imports. These imports are split between long term oil crude oil contracts and spot cargoes in a 60:40 ratio.
Global reserves
'Most of these companies including Saudi Aramco have their petroleum reserves all over the world including in Japan, Singapore and South Korea. In the event of the Strait of Hormuz getting closed; the replacement barrels will come from there," the official said, adding talks to access them in emergency have already take place.
On Tuesday, India welcomed the ceasefire between Israel and Iran, adding it is ready to play its part in the efforts to bring peace and stability in West Asia. "While we remain deeply concerned about the prospects for overall and sustained regional security and stability, we welcome reports of a ceasefire between Iran and Israel and the role played by the US and Qatar in bringing it about," a statement from the external affairs ministry said.
"We wish to reiterate that there is no alternative to dialogue and diplomacy in order to address and resolve the multiple conflicts in the region. India stands ready to play its part in these efforts and hopes that all concerned parties will work towards sustained peace and stability," it added.
Also read | Spot freight rates could surge further if Iran shuts Strait of Hormuz
India has been working on Plan B for energy security since Israel's attack on Iran on 13 June. India's top crude oil suppliers from the region are Iraq, Saudi Arabia, UAE, Kuwait, Oman and Bahrain, which account for about half of India's total supplies.
'This planning has taken place since Israel's the first set of attacks on Iran. The contingency measures were put in place immediately when Israelis struck Iran," the person cited above said.
Eyes on America
The rest of the supplies that India needs will come from the US, the official said, as India buys more oil from the US.
India imported 3.7 million metric tonnes (mmt) of crude oil from the US in the April-June quarter (as of 24 June), against 2.7 mmt a year earlier. India's total energy imports from the US was 10.5 mmt in 2024-25, with energy security gaining importance in the India-US relations matrix.
'Crude oil imports from the US will reach almost 4 mmt in the first quarter, given that some cargoes are still on the way and the month of June is yet to end. And these volumes will go up," the person added.
Analysts say diversifying import sources after the Russia-Ukraine conflict, which at its peak in 2022 led to multi-year high prices of oil, will help India mitigate a crisis situation. India has the option of sourcing crude oil from 39 countries.
War premiums
Meanwhile, shipping freight spot rates are up 150% since the start of the Israel-Iran war, and war risk premiums are expected to increase further. The daily freight rates of each tanker and vessel from West Asia to Japan and South Korea have increased to $50,000 from $20,000 about 10 days ago.
'The war premium will go up. Generally, insurance used to be 0.01% of the cargo, and technically, doesn't cover force majeure and war. There will be an extra charge and a fee of escorting the vessels through the Red Sea crisis, given the danger of Houthi attacks. The costing can go up," the official added.
'The Israel-Iran conflict poses risks to global energy supply disruptions and has led to a modest jump in oil prices thus far. If the situation escalates, such as blockades around the Strait of Hormuz, the risk premium in oil prices could rise further," the J.P. Morgan Asset Management report said.
For now, the sentiments in the market have eased with the announcement of ceasefire.
And read | Israel-Iran ceasefire takes the pressure off crude prices, but not Indian OMCs
