A sustained and protracted closure will however have much more serious repercussion than a temporary logistical headache. It could lead to a severe structural dislocation of export logistics for regional producers and even result in a profound macroeconomic shock for heavily reliant nations like India. It’s important to understand that a logistical freeze could harden into lasting economic problems.
We need to analytically separate the raw cost of petroleum from the physical paralysis of maritime freight. For oil, the sheer mathematics of the price hike overwhelm domestic buffers. India imports roughly 88 per cent of its crude oil requirement.
More critically, about 50 per cent of India’s crude imports and roughly 54 per cent of its liquefied natural gas shipments transit the Strait of Hormuz. Policy discussions often point to India possessing roughly 40 to 45 days of crude reserves when combining strategic and commercial stocks, though immediately accessible inventories may be lower during disruptions.
This aggregate figure masks a severe structural vulnerability regarding Liquefied Petroleum Gas. Astoundingly, around 80 per cent of India’s LPG imports originate from Gulf suppliers and depend on the Strait. Because strategic reserves for LPG are practically non-existent, an extended halt in fresh cargoes guarantees immediate domestic rationing.
War-risk insurance premiums for vessels operating in the Persian Gulf have surged sharply, with underwriters effectively engineering a financial quarantine around the region. Marine hull insurance rates for ships transiting the Gulf have reportedly risen by as much as 40 to 50 per cent in recent weeks. To offset their own surging insurance exposure, major carriers, including CMA CGM, Maersk, and Hapag-Lloyd, have imposed Emergency Conflict Surcharges ranging from $2,000 to $4,000 per container on cargo moving through Gulf routes.
Further, a large portion of fertiliser exports from Gulf producers also moves through these shipping routes, linking maritime disruptions directly to agricultural input markets. India is highly vulnerable here, importing around 60 per cent of its Diammonium Phosphate fertiliser requirements while also relying on imported natural gas for domestic urea production. Surging freight rates and paralysed supply chains mean the cost of these inputs will skyrocket regardless of the baseline oil price.
Furthermore, this logistics shock now threatens the competitiveness of India’s merchandise exports and its broader trade relationship with the Gulf Cooperation Council, which exceeded $178 billion last year. For Indian exporters shipping low-margin goods such as textiles, chemicals, or engineering components, a sudden $2,000 to $4,000 container surcharge can wipe out profit margins overnight.
The macroeconomic effects of a prolonged Hormuz blockade will percolate into the Indian economy through multiple stealth mechanisms. The most immediate is a Balance of Payments problem, driven directly by the oil price hike.
Every ten-dollar per barrel increase in Brent crude mechanically widens India’s Current Account Deficit by roughly 0.4 to 0.5 per cent of GDP. In absolute terms, that adds an estimated $9 billion to the deficit. That same spike mechanically adds 30 to 35 basis points to retail CPI inflation while shaving 15 to 20 basis points off real GDP growth. This creates a textbook stagflation drag, importing inflationary pressures while suffocating domestic expansion.
This widening deficit places immediate depreciation pressure on the Rupee. To prevent a currency freefall and limit imported inflation, the Reserve Bank of India is forced to aggressively intervene using its foreign exchange reserves to mop up Rupees. Consequently, domestic borrowing costs spike for businesses and consumers alike. The dynamic creates a shadow tightening of monetary policy that chokes off credit growth.
Persistent inflation driven by these supply-side shocks also forces households to dip into their savings to maintain basic consumption levels. This reduces the pool of domestic capital available for investment, further constraining long-term economic growth.
The Strait of Hormuz carries around one-fifth of global oil supplies and over 20 million barrels per day of petroleum flows, making it one of the world’s most critical energy chokepoints. India’s profound dependence on Gulf suppliers reveals that aggregate macroeconomic buffers are highly asymmetrical. While strategic petroleum reserves offer a temporary cushion for crude, the lack of strategic storage for refined products leaves the domestic economy dangerously exposed to localised shocks.
Moving forward, policymakers must urgently rethink their strategic response to these concentrated vulnerabilities. This requires expanding the size and scope of strategic reserves to include essential fuels like LPG, aggressively diversifying toward Atlantic Basin crude, and building robust maritime security coordination with Gulf partners.
Deepanshu Mohan is Professor of Economics and Dean, O P Jindal Global University. Ankur Singh is a Senior Research Analyst with the Centre for New Economics Studies, O P Jindal
The Strait of Hormuz carries around one-fifth of global oil supplies and over 20 million barrels per day of petroleum flows, making it one of the world's most critical energy chokepoints. (AP File Photo) 
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