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Informist, Monday, Jun. 23, 2025

By Pallavi Singhal

NEW DELHI – The escalation of tensions in the Persian Gulf region has raised concerns about the potential disruption of oil supplies through the Strait of Hormuz, a critical waterway for the global oil trade. But while India imports a significant portion of its crude oil from West Asia, the country may not be affected as much because it has diversified its crude oil supplies over the years, according to analysts.

India's sourcing strategy has evolved since 2022 with Russian imports now exceeding those from all West Asian suppliers combined. "India has reserves that they will use and will source from other countries to offset the West Asian supply," Harshraj Aggarwal, lead analyst at YES Securities, told Informist. Additions from the US, Brazil, West Africa, and even Latin America offer alternative routes via the Suez Canal, Cape of Good Hope, and the Pacific Ocean, Aggarwal said in a report published Sunday.

According to recent reports, Iran's parliament has formally approved a proposal to shut the Strait of Hormuz in response to the US air strikes on key nuclear infrastructure. While the final decision rests with the country's Supreme National Security Council, the move has sparked concerns about the potential impact on global oil supplies. 

India's crude oil imports have been steadily increasing, with the country importing 23.4 million metric tons of crude oil in May this year, one of the highest monthly volumes on record, according to Aggarwal. Approximately 2 million barrels per day of India's crude imports travel through the Strait of Hormuz, making it a critical chokepoint for the country's energy security.

Another silver lining for New Delhi could be Saudi Arabia's ability to reroute crude oil exports via the Red Sea, which will offer a layer of supply continuity amidst the Strait of Hormuz uncertainty. While India sources 18–20% of its crude oil from Saudi Arabia, the Petroline–Yanbu corridor ensures that a significant portion of these volumes could still reach Indian refiners even if shipping through the Strait of Hormuz is disrupted, Aggarwal said.

Despite these efforts, a temporary closure of the strait would have significant implications for India's refinery intake and shipping economics. The country's refiners would face increased costs and logistical challenges, which could hurt their profitability. "The margins for Oil Marketing Companies have come down from more than INR 10 per litre to under INR 3 per litre," Aggarwal said. "As crude and product prices stay elevated, the dwindling spread between input cost and retail realization continues, limiting the integrated public sector unit refiners' ability to capture gains fully."

According to Sumit Ritolia, lead research analyst at Kpler, what may help Indian refiners is the adoption of a cautious approach, preparing for potential tightening of Hormuz-linked logistics while avoiding overreaction to unmaterialised threats. Ritolia advised that crude import planning for July should take into account the dynamic risk environment, elevated freight costs, and region-specific arbitrage shifts.

Despite renewed concerns about a potential shutdown of the Strait of Hormuz, experts believe the likelihood of a full closure is "very low" due to potential economic and diplomatic repercussions for Iran. Instead, short-lived disruptions lasting 24-72 hours are more plausible, which could still cause significant market volatility, reduce tanker availability, and drive up risk premiums in oil and product markets.  End

Edited by Rajeev Pai

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