Hormuz Blockade: How India is Managing Its Oil Supply

The recent closure of the Strait of Hormuz, a critical chokepoint for global energy, has placed India's energy security under significant pressure. The blockade, initiated by Iran around March 2, 2026, following a conflict with the United States and Israel, has halted most commercial traffic through a waterway that handles nearly a quarter of the world's seaborne oil trade. With a substantial portion of its energy imports transiting this route, New Delhi is closely monitoring the situation and implementing measures to mitigate the impact on its economy.

India's High Stakes in the Strait

India's dependence on the Strait of Hormuz is substantial. Approximately 50% of the nation's crude oil imports, amounting to 2.5 to 2.8 million barrels per day, traditionally pass through this narrow passage. The reliance is even more acute for gaseous fuels. Around 80-85% of India's Liquefied Petroleum Gas (LPG) and about 60% of its Liquefied Natural Gas (LNG) imports, primarily from Gulf producers like Qatar, Saudi Arabia, and the UAE, are shipped via this route. This heavy reliance exposes India to significant supply chain vulnerabilities during geopolitical conflicts in the region.

The Immediate Impact on Shipping

Since the blockade began, tanker traffic has plummeted from an average of over 150 daily transits to a mere trickle of two to thirteen vessels, mostly Iranian-linked ships. This disruption has left hundreds of tankers anchored outside the strait and prompted international carriers to suspend operations. Reports indicate that 37 Indian-flagged ships with over 1,000 seafarers are currently stuck in the Persian Gulf region, highlighting the immediate logistical challenges and risks to personnel and cargo.

Diversification as a Key Strategy

In response to the crisis, India has accelerated its energy source diversification strategy. The country is now sourcing crude oil from approximately 40 nations, a significant increase from its previous reliance on 27 suppliers. This shift has enabled India to route a larger portion of its imports through alternative maritime corridors. Government sources indicate that roughly 70% of crude imports are now arriving via routes that bypass the Strait of Hormuz, an increase from 55% in the previous year. This includes sourcing from the US, West Africa, and Latin America, though these routes involve longer voyage times and potentially higher freight costs.

The Role of Russian Crude

Supplies from Russia, which have become a primary source for India, continue to play a crucial role in the country's energy calculus. Russian crude is delivered via sea routes that entirely bypass the Strait of Hormuz, providing a reliable alternative to disrupted Gulf supplies. This strategic pivot helps cushion the immediate supply shock and provides Indian refiners with a steady flow of crude oil, mitigating some of the volatility caused by the blockade.

Managing LPG and LNG Vulnerabilities

Given the higher dependency on the strait for LPG and LNG, India faces a more acute challenge in securing these supplies. To counter potential shortages, Indian refineries and petrochemical facilities have been instructed to increase domestic LPG output by diverting related hydrocarbon streams. While these measures help, the country's limited strategic reserves for LPG-estimated at only about one week of stocks-underscore the vulnerability to a prolonged disruption.

Leveraging Strategic Petroleum Reserves

To buffer against short-term supply shocks, India maintains a multi-layered storage system. The country's total national capacity for crude oil and petroleum products stands at 74 days. This includes 9.5 days of supply in Strategic Petroleum Reserves (SPR) facilities and an additional 64.5 days of storage held by Oil Marketing Companies (OMCs). These reserves, totaling around 100 million barrels, provide a critical cushion to manage the initial phase of the supply disruption.

Economic Ripple Effects

An extended blockade poses a significant threat to India's economic stability. Every $10 increase in global oil prices is estimated to reduce India’s GDP growth by 0.1–0.2 percentage points and increase inflation by around 0.2 percentage points. To ease the burden on consumers, the government has cut the special additional excise duty on fuels. Simultaneously, it has imposed export duties on diesel and aviation turbine fuel to prevent domestic refiners from making windfall gains at the expense of national supply.

A Cautious Outlook

While India has welcomed a recent two-week ceasefire and the subsequent passage of two Indian LPG carriers as a goodwill gesture, the situation remains fragile. The passage of these vessels does not signify a full reopening of the strait. The long-term resolution depends on the geopolitical dynamics in the region. India's multi-pronged strategy of diversification, leveraging strategic reserves, and managing domestic production demonstrates a proactive approach, but the economy remains exposed to price volatility and supply chain risks as long as the critical Hormuz chokepoint is contested.