Will Iran Shut Down the Strait of Hormuz? What It Means for Global Oil and India’s Economy

Overview

The Strait of Hormuz—a narrow stretch of water between Iran and Oman—is once again at the center of global oil market anxiety. After Iran’s Parliament recently approved a proposal to shut the strategic chokepoint, concerns are mounting about its impact on oil prices and energy security around the world, especially for oil-import-heavy economies like India.

In this blog, we break down:

• The strategic importance of the Strait of Hormuz

• Iran’s current stance and global reactions

• The ripple effects on oil prices

• Specific consequences for India

• What might happen next

Why the Strait of Hormuz Matters

The Strait of Hormuz connects the Persian Gulf to the Arabian Sea. Around 20% of the world’s crude oil (about 20 million barrels daily) flows through this passage. This includes oil from major producers like Saudi Arabia, Iran, Iraq, Kuwait, and the UAE.

Key Numbers:

What Sparked the Latest Tension?

Iran’s Parliament recently approved a measure to close the Strait of Hormuz in response to U.S. airstrikes on its nuclear facilities. While the final decision rests with Iran’s Supreme National Security Council, the announcement alone has already pushed Brent crude prices to a five-month high.

Two supertankers reportedly made abrupt course changes after the airstrikes, reflecting growing uncertainty and safety concerns in the shipping industry.

Takeaway: While the closure hasn’t happened yet, the mere threat has rattled markets.

How Likely Is a Full Closure?

Historically, Iran has never completely shut the strait—even during severe conflicts like the Iran-Iraq war or U.S. sanctions. Here’s why:

Why Iran Might Not Shut It:

• Self-Harm: Iran exports its own oil through the strait. Blocking it would damage its economy.

• Chinese Interests: China is Iran’s biggest oil customer and would be negatively impacted.

• Global Backlash: Any physical blockade could trigger military intervention or international sanctions.

Still, Iran has used the threat of closure as a geopolitical tool many times, so this move could be posturing rather than a serious attempt.

Strait of Hormuz Closure Impact on Global Oil Supply

Let’s explore how a partial or complete disruption could shake up global markets.

Possible Scenarios:

What This Means for India’s Economy

India imports over 80% of its crude oil needs. Any disruption in supply or surge in prices hits hard.

Direct Impacts:

• Rising Fuel Prices: Petrol and diesel could get significantly more expensive.

• Inflation Spike: Higher fuel costs mean increased transportation costs, affecting food and goods.

• Widening Fiscal Deficit: Government subsidies on fuel may rise, straining the budget.

Sector-Specific Effects:

• Airlines: Jet fuel costs rise, squeezing already thin profit margins.

• Manufacturing: Higher input and transportation costs reduce competitiveness.

• Transport & Logistics: Increased freight costs can slow down domestic commerce.

Expert Insight: "Closure of Hormuz will harm Iran and China more than anyone else," says VK Vijayakumar, Geojit Financial Services. "Historically, it’s always been a threat, not a reality."

How Governments and Markets Are Responding

• Strategic Oil Reserves: Countries like India, the U.S., and China have strategic reserves to cushion temporary supply shocks.

• Diplomatic Channels: The U.S., China, and EU are likely to push for de-escalation.

• Shipping Insurance Hike: Insurance costs for oil tankers in the region are already climbing.

Takeaway: Governments are preparing for disruption, but long-term closure would need coordinated global action.