The Hindu: Published on 19th June 2025:
Why in News?
Oil prices surged following escalating tensions between Iran and Israel, raising fears of a potential disruption in global oil supply chains. The situation has caused volatility in international markets and triggered concerns regarding energy security globally, including for India.
What Has Happened?
Brent crude futures rose by about 9% on June 13, reaching $75.65 per barrel, and even touched a five-month high of $78.50 during intraday trade.
By June 17 evening, the price stabilized slightly at $74.98, still about 2.4% higher than Monday's closing.
Why Are Oil Prices Rising?
Iran has threatened to close the Strait of Hormuz, a strategic chokepoint for global oil transportation.
Closure could disrupt 20 million barrels per day flow (≈20% of global consumption), leading to:
Delays in oil delivery
Higher shipping & insurance costs
Increased energy prices globally
The Suez Canal and Red Sea, vital for Indian shipping, could also be impacted due to conflict escalation.
Importance of Strait of Hormuz:
Connects Persian Gulf to the Arabian Sea via the Gulf of Oman.
Key transit route for crude oil and LNG from Saudi Arabia, UAE, Kuwait, Iraq, Qatar, Iran.
In 2024, 84% of oil and 83% of LNG through the strait was headed for Asia, including India.
Any disruption affects Asia’s energy security directly.
Can the World Handle This Uncertainty?
According to IEA, markets seem well-supplied for now:
Supply projected to increase by 1.8 mb/d to reach 104.9 mb/d
Demand to grow by 720 kb/d
Inventories have been increasing since February
But geopolitical risks remain high.
JM Financial: Disruption is unlikely, but if it happens, oil and inflation could soar globally.
How is India Positioned?
India imports >80% of its crude oil needs, making it highly vulnerable to price hikes.
No direct imports from Iran currently (due to U.S. sanctions).
Import basket has been diversified, per Petroleum Minister Hardeep Singh Puri, reducing dependence on any single region.
However, global price spikes still impact import bills and inflation.
Impact on Indian Economy:
As per ICRA’s Aditi Nayar:
Short-term price hikes may not significantly impact GDP.
Persistent high prices could:
Hurt corporate profitability
Delay private investments (CapEx)
Lead to downward revision in H2 GDP forecast (currently 6.2%)
Indian exporters may also face higher costs due to shipping disruptions.
Conclusion:
The Iran-Israel conflict has reignited fears over energy supply security, especially through the Strait of Hormuz. Though India is relatively cushioned due to diversification, its heavy reliance on imports means prolonged conflict and price surge could still deeply affect its economy.