Iran plans to shut Strait of Hormuz: How it may shake global oil and why India is at risk too

In this photo obtained from the US Department of Defense, the US Navy's aircraft carrier USS Dwight D. Eisenhower (CVN 69) (IKE) transits the Strait of Hormuz on November 26, 2023.

In a sharp escalation following US airstrikes on its nuclear facilities, Iran’s parliament on Sunday approved a proposal to close the Strait of Hormuz, one of the world’s most critical oil shipping routes. The move, reported by state-run Press TV on Sunday, signals Tehran’s willingness to hit back economically.

Brigadier General Alireza Tangsiri, commander of the IRGC Navy, reportedly issued a stark warning: “The Strait of Hormuz will be closed within a few hours.”

However, this is not yet a final decision. While the parliamentary approval reflects growing political resolve, the final authority rests with Iran’s Supreme National Security Council, headed by Supreme Leader Ayatollah Ali Khamenei. So far, no formal closure order has been issued, but the intent is clear: Iran is warning the world that it holds a powerful economic lever.

What is the Strait of Hormuz?

The Strait of Hormuz is a narrow, strategic waterway between Oman and Iran, connecting the Persian Gulf to the Arabian Sea. It is only about 21 miles wide at its narrowest point but is the artery through which around 20-25 per cent of the world’s crude oil passes - approximately 20 million barrels of crude oil per day.

Every day, over 17 million barrels of oil transit through the Strait, coming from key exporters like Saudi Arabia, the UAE, Iraq, Kuwait, and Qatar, according to 2023 data. LNG shipments from Qatar and petroleum from Iran itself also pass through this route. While some alternate pipelines exist, they can only handle roughly 2.6 million barrels per day.

How would closure affect the world?

Global oil prices may skyrocket: A shutdown would block the transit of millions of barrels of oil per day. That would cause oil prices to surge above USD 120–150 per barrel, possibly even higher depending on the duration of the blockage. Brent crude has already jumped past $90 per barrel, while WTI climbed above $87.

It may also trigger panic buying and stockpiling of crude across major economies, and hit oil-importing nations like India, China, Japan, and EU members the hardest.

Disruption of global shipping and trade: Beyond oil, the Strait of Hormuz is a major artery for global shipping. Its closure would paralyse maritime cargo routes, particularly for Gulf countries; delay shipments of essential goods, raising global shipping costs; and force vessels to reroute via longer paths, increasing freight time and insurance premiums.

Energy crises in Asia and Europe: India, which imports over 60 per cent of its crude from the Gulf, would face severe inflation, fuel shortages, and economic strain. China, the world’s largest crude importer, would need to urgently diversify supply and use strategic reserves. Europe, already facing tight LNG supplies post-Ukraine war, would lose key LNG imports from Qatar, aggravating its energy crunch.

Global market panic and recession fears: The combined effect of energy disruption, inflation, and trade delays could send stock markets into a tailspin, especially in oil-sensitive sectors like airlines, shipping, and manufacturing. It may also force central banks to raise interest rates or inject liquidity to calm markets, and trigger recession fears globally, especially in developing economies already facing debt pressure.

Regional military escalation: A closure of Hormuz wouldn’t go unanswered. The U.S., UK, France, and Gulf states have naval forces stationed in the region and would likely deploy warships to keep the strait open through escort missions or military strikes.

How it may affect India?

India, which relies heavily on crude oil imports to meet its energy needs, would be significantly impacted by a closure of the Strait of Hormuz. Over 60% of India’s crude oil comes from the Gulf region, and any disruption in this vital chokepoint would send shockwaves through its economy. A shutdown of the Strait would likely trigger a sharp rise in global oil prices, leading to higher domestic petrol and diesel costs. This, in turn, would strain household budgets, raise transportation costs, and inflate overall consumer prices. Additionally, India’s shipments of LNG and crude oil from key suppliers such as Qatar, Iraq, and the UAE could face serious delays or need to be rerouted via longer, costlier paths, pushing up shipping and insurance expenses.

Beyond energy, the crisis would also hit trade, as the Strait of Hormuz is a crucial sea route for India’s exports to the Middle East and beyond, potentially affecting bilateral trade volumes and economic ties in the region.

How Iran itself would suffer?

While Iran’s threat to close the Strait of Hormuz may appear to offer it strategic leverage, such a move could severely backfire and harm Iran itself. The Strait is not just a conduit for global oil exports, it is also Iran’s own economic lifeline. A significant portion of Iran’s oil exports, including those shipped under the radar despite international sanctions, pass through the same waters. Shutting the Strait would effectively cut off its primary source of revenue at a time when its economy is already under intense strain.

Moreover, a full-scale closure could trigger military retaliation from global powers. The United States and its allies maintain a strong naval presence in the region, and any attempt to block the waterway would likely provoke a swift and potentially devastating response. Beyond military risks, Iran also faces diplomatic fallout. Even friendly nations such as China, which still purchase Iranian oil, may be unwilling to support or defend such a drastic escalation. Tehran’s move could alienate key partners and accelerate its isolation on the global stage, undermining both its economy and strategic position.