Iran may close Strait of Hormuz: How rising oil prices would hit India

Strait of Hormuz

Tensions in the Middle East escalated sharply over the weekend, after the US joined Israel to attack Iran. In retaliation, reports suggested that the Iranian parliament approved the closure of the Strait of Hormuz (SoH), a critical chokepoint which facilitates nearly 20 percent of global oil and LNG (Liquefied Natural Gas) trade.

Despite a series of threats in the past, Iran has never closed the Strait, primarily due to the severe economic repercussions it would face. However, if Iran decides to follow through this time, the move could have far-reaching consequences worldwide.

Over 80 percent of the oil transported through the Strait is consumed by Asia, of which China, India, Japan and South Korea account for around 65 percent.

Already, the suggestion of a closure has sent oil prices boiling. Brent crude prices jumped six percent to hover near $81/bbl, while WTI crude climbed sharply, as a risk-off sentiment took hold. Further, the sharp volatility signalled that traders were awaiting further escalation in the conflict.

What would a complete closure of the Strait of Hormuz, along with rising oil prices, mean for India?

According to research firm ICRA, crude imports from Iraq, Saudi Arabia, Kuwait and the United Arab Emirates (UAE) that are routed  through the SoH account for ~45-50 percent of the total crude oil imports to India. Notably, Russia accounted for 36 percent of the total crude oil imports to India in FY2025.

If the Strait is closed, India has limited alternatives to source crude from the Middle East. While Saudi Arabia and the UAE have crude oil pipelines for transportation, with a surplus capacity of around 2.5-3.0 mbd (million barrels per day), there would be a supply mismatch, in case the conflict escalates.

According to experts, an increase of $10/bbl (barrel) in the average price of crude oil would lead to India's net oil imports rising by $13-14 billion during the year, and the Current Account Deficit (CAD) increasing by 0.3 percent of the country’s GDP.

Therefore, ICRA suggested that if the average crude oil price rises to $80-90/bbl in FY2026, the CAD is likely to widen to 1.5-1.6 percent of GDP,  from its current estimate of 1.2-1.3 percent of GDP. This would also exert pressure on the USD/INR pair during the fiscal year.

Further, for every 10 percent increase in crude oil prices, the WPI inflation will rise by 80-100 bps, and the CPI inflation will see an uptick of 20-30 bps.

India’s GDP growth could also see an impact from rising crude oil prices. “A sustained increase from the current levels would weigh on India Inc’s profitability and portend a downward revision in our GDP growth projections of 6.2 percent for the fiscal,” said ICRA.

Sectors impacted by rising crude

Downstream OMCs: Marketing margins for Indian downstream companies may moderate to Rs 6-8/litre for diesel and petrol, as per ICRA. Oil marketing companies (OMCs) often come under pressure as their input costs increase, but they may not be able to fully pass on the hike to consumers due to pricing regulations or demand concerns, impacting their profit margins.

Stocks impacted: HPCL, BPCL, IOC

Upstream OMCs: Oil exploration companies, such as ONGC and Oil India, may benefit from higher crude oil prices as they earn more per barrel produced while their costs remain largely fixed, therefore assisting profitability.

Stocks impacted: ONGC, Oil India

Paints: Crude oil prices affect the decorative paint business more than any other because it is a raw material-intensive industry. The manufacture of paint requires more than 300 items, most being petroleum-based. Raw material accounts for 55-60 percent of input costs and directly impacts gross margins.

Stocks impacted: Asian Paints, Berger Paints, Kansai Nerolac

Tyres: Brent crude is also a major source of synthetic rubber and other petrochemical products used in tyre manufacturing. As crude oil prices rise, the cost of these raw materials rises, increasing production costs for tyre companies.

Stocks impacted: MRF, CEAT, JK Tyres, Apollo Tyres

LNG prices will also soar

Not just that of crude oil, but prices of LPG would also see an uptick. Since 2023, gas prices had fallen as crude oil prices had softened amid tariff tensions and increase in output announced by the OPEC+ nations. Here’s a look at a sectoral impact of rising LPG prices.

Power: The plant load factor for any gas-based power plant will be subdued due to limited domestic gas availability and the reluctance of discoms to buy expensive LNG-based power, according to ICRA. Any further rise in LNG prices will just worsen the competitiveness of gas-based power when compared to other sources of generation.

Stocks impacted: Petronet LNG Ltd, GAIL (India) Limited, Adani Total Gas

City Gas Distribution: An increase in LNG prices will hurt the competitiveness of CGD firms and reverse the gains from the price moderation seen in June 2025.

Stocks impacted: Mahangar Gas, Indraprastha Gas

Fertilisers: It may increase in subsidy requirements for urea manufacturers as gas costs will be passed through to the end-user. “Ammonia prices may rise as gas remains a key input and impacts profitability of Phosphatic & Potassic (P&K) fertiliser players unless subsidy corrections are made in such a scenario,” added ICRA.

Stocks impacted: Coromandel International, Chambal Fertilisers, Travancore Fertilisers

Industrial firms: Refineries may shift to using liquid fuels as was the case after the Russia-Ukraine crisis. Petrochemical players using Natural Gas Liquids (NGLs) as feedstock may face significant headwinds amid already weak polymer margins.

Stocks impacted: Petronet LNG, Indian Oil

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