STRAIT OF HORMUZ CLOSURE: IMPLICATIONS FOR ENERGY MARKETS

STRAIT OF HORMUZ CLOSURE: IMPLICATIONS FOR ENERGY MARKETS

Why in the News?

  • Iranian motion: Iran’s parliament approved a motion calling for closure of the Strait of Hormuz following US airstrikes on Iranian nuclear sites.
  • Global concern: The move threatens a vital energy transit route, raising fears of oil and gas supply disruption globally and for India.
  • Market impact: Potential closure could cause oil prices to surge above $120-$150 per barrel, impacting global inflation and energy security

STRAIT OF HORMUZ CLOSURE: IMPLICATIONS FOR ENERGY MARKETS

Strategic Importance of the Strait

  • Vital chokepoint: Connects Persian Gulf with Arabian Sea; handles 20% of global petroleum and LNG trade.
  • India’s dependency: Nearly 47% of India’s crude and a large share of LNG imports transit via the Strait.
  • Geopolitical risks: Closure would disrupt flows from Iraq, Saudi Arabia, UAE, Qatar, impacting India’s energy security.
  • Global reaction: US and regional powers likely to counteract any blockade due to shared dependence on this route.

Possible Impact on India

  • High import dependency: India imports 85% of crude and 50% of natural gas needs.
  • Economic vulnerability: Higher oil prices would widen trade deficit, weaken rupee, increase inflation.
  • Preparedness: Govt claims adequate reserves for several weeks; closely monitoring the evolving situation.
  • Strategic risks: Persistent disruption could force India to seek alternative energy sources and revise import strategies.

ENERGY SECURITY

●  Definition: Ensuring uninterrupted access to affordable energy sources.

●  India’s challenges: High import dependency, volatile markets, geopolitical risks.

● Government steps: Building strategic reserves, promoting renewables, diversifying energy sources.

● Global initiatives: International collaborations to stabilize global energy markets.

● Future outlook: Need for a balanced energy mix and strengthened domestic production to safeguard energy security.