Strait of Hormuz / Iran's Hormuz decision will become an enemy of oil, this is how it will affect India

The US entry into the Iran-Israel war has worsened the situation. Iran's parliament proposed to close the Strait of Hormuz, which increased the prices of crude oil. India may have to face its direct impact - the oil bill will increase, the current account deficit and inflation may also increase.

Strait of Hormuz: The active participation of America in the ongoing war between Iran and Israel has made the situation even more explosive. Heavy shelling continues between the two countries and the scope of this tension has now reached global energy security. Meanwhile, the Iranian Parliament has passed an important resolution - to close the Strait of Hormuz, the main sea route for crude oil trade. Although the final approval of Iran's supreme leader Ayatollah Ali Khamenei is yet to be given on this, but the mere hint of this has caused a surge in crude oil prices.

What is the Strait of Hormuz and why is it so important?

The Strait of Hormuz is one of the world's busiest and strategically important sea routes, through which about 20% of the world's crude oil is transported. This route connects the Persian Gulf to the Gulf of Oman and then to the Arabian Sea. The energy security of many countries including China, Japan, India, South Korea rests on this route.

How much impact on India?

India is mainly dependent on countries like Iraq, Saudi Arabia, Kuwait and UAE for its energy needs and a large part of the imports from these countries are through the Strait of Hormuz. According to ICRA, India imports 45-50% of its total oil consumption through this route.

Experts believe that if Khamenei approves this proposal and the Strait of Hormuz is closed, crude oil prices could increase by $ 10 per barrel, which could increase India's annual oil import bill to $ 13-14 billion. This could increase India's current account deficit (CAD) to 0.3% of GDP.

Impact of rising prices on GDP and inflation

If the average price of crude oil reaches $ 80-90 per barrel in the coming months, as ICRA estimates, then India's CAD could increase from the current 1.2-1.3% to 1.5-1.6%.

This will also impact the rupee, which will affect the USD/INR exchange rate.

In addition, every 10% crude price increase can lead to:

Wholesale inflation rate (WPI) increasing by 0.8-1%

Consumer inflation rate (CPI) increasing by 0.2-0.3%

Industry also in crisis and setback to GDP growth

When crude oil prices remain high, it increases the cost of industries and directly affects their profitability.

According to ICRA, if the situation remains the same, India's GDP growth rate for 2026 can shrink to 6.2%.