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As the joint US-Israel “Operation Shield of Judah” struck over 30 strategic targets in Iran, the world is witnessing a new dimension of geopolitical tension. The strategic goal of this operation remains the neutralisation of Iran’s nuclear and missile arsenal. The economic implications of this operation threaten a major blow to India’s economic stability.
The Hormuz factor: India’s 50% energy lifeline at risk
The major concern for India in this scenario remains the Strait of Hormuz, the world’s most vital maritime oil chokepoint. This waterway connects the oil-exporting countries of the Middle East to the rest of the world and falls mostly in Iranian territorial waters.
As per recent data released by the commodity tracking company Kpler, India’s reliance on this oil chokepoint has risen alarmingly. As of February 24th, India was importing approximately 2.6 million barrels of oil per day from Gulf countries. This oil supply route passes through the Strait of Hormuz. If Iran decides to block this route in retaliation for the ongoing invasion, India’s major oil supply route could come to a total standstill.
Global oil shock: Prices and supply chains under fire
The Strait of Hormuz is the global hub for the transportation of close to 20% of the world’s total crude oil consumption. This figure is even more alarming for the Asian superpowers such as India, China, Japan, and South Korea, where 40% of the total crude oil consumption is channeled through the Strait of Hormuz.
The United States’ Energy Information Administration has reported that close to 69% of the total crude oil and natural gas consumption passing through the Strait of Hormuz is for the consumption of the Asian nations.
Any such untoward incident would lead to the following scenarios:
Skyrocketing crude oil prices: A massive increase in the price of Brent crude oil is expected in the coming days.
Increased logistics costs: The freight and insurance costs for the oil tankers would also increase significantly, considering that the Persian Gulf is in a war zone.
Domestic inflation: This would, in turn, lead to an increase in the prices of petrol and diesel in India, leading to an overall rise in the rate of inflation in the country.
India’s 90% import dependency challenge
India’s situation is particularly precarious given that the country imports anywhere between 85% and 90% of its overall crude oil needs. As a result, while the government has been trying to diversify its crude oil supplies by sourcing more from Russia, West Africa, and the Americas, the Gulf remains the foundation of India’s energy landscape due to the particular grade of crude oil that needs to be imported, called “sour crude,” and the geographical proximity of the suppliers.
Strategic diversification: Can India weather the storm?
As a result of such geopolitical risks, India has been trying to diversify its crude oil supplies over the last few years. As per a report by Visual Capitalist, India’s crude oil supplies come from a vast array of suppliers, including:
- Primary suppliers: Russia, Iraq, and Saudi Arabia.
- Secondary suppliers: UAE, USA, Mexico, and Kuwait.
- Emerging suppliers: West Africa, Canada, and South America.
Despite India’s efforts at diversification, the overall crude oil needs of the country remain such that a potential conflict in the Middle East remains India’s “nightmare scenario.”
