Tensions between Israel and Iran escalated sharply after the US carried out airstrikes on key nuclear facilities in Iran. This reignited fears around the potential closure of the Strait of Hormuz — a critical oil trade route that plays a significant role in global energy supply. The situation sparked concerns across global markets, including in India, as crude oil prices surged and investors grew increasingly wary of rising geopolitical risks.
However, recent developments hint at a possible de-escalation, with talks of a ceasefire between Iran and Israel. This has helped cool oil prices and brought some relief to equity markets. Still, the uncertainty around the Strait of Hormuz and its impact on oil flows continues to keep investors on edge, especially in oil-dependent economies like India.
Let’s break it down to understand how this impacts your portfolio.
What’s Happening?
On June 22, 2025, the United States conducted airstrikes targeting three major nuclear sites in Iran namely Fordow, Natanz, and Isfahan under an operation named Midnight Hammer. These strikes were carried out using advanced B-2 Spirit bombers.
In retaliation, Iran renewed its threat to shut down the Strait of Hormuz. The Iranian parliament has already approved a proposal to close the Strait, although the final decision rests with the country’s Supreme National Security Council. An Iranian lawmaker and commander of the Revolutionary Guards stated that the closure is under serious consideration and will be enforced if deemed necessary.
The Strait of Hormuz, a narrow waterway between Iran and Oman, is one of the world’s most vital oil shipping routes. Roughly one-fifth of global oil supply passes through it.
Why Are Asia and India at Risk?
Over 80% of the oil passing through the Strait of Hormuz is consumed by Asian countries. Among them, China, India, Japan, and South Korea account for nearly 65% of the demand.
For India, the risk is even more pronounced. Nearly half of India’s crude oil imports from countries such as Iraq, Saudi Arabia, Kuwait, and the UAE are shipped through this route. While Saudi Arabia and the UAE do have pipelines that bypass the Strait, their spare capacity is limited and may not be sufficient if the conflict intensifies.
India accounts for 14% of the total crude oil transported through the Strait of Hormuz to different countries.
Russia has emerged as a major oil supplier for India, accounting for 36% of total imports in FY2025. However, if the Strait of Hormuz is closed, India’s ability to source oil from the Middle East will be severely constrained, potentially leading to a supply gap.
What Does It Mean for India’s Economy?
A $10-per-barrel rise in crude oil prices could inflate India’s oil import bill by $13–14 billion over the year. This would also increase the Current Account Deficit (CAD) by about 0.3% of GDP.
If oil prices remain in the $80–$90 per barrel range during FY2026, the CAD could rise to 1.5–1.6% of GDP, up from the current estimate of 1.2–1.3%. This could also exert downward pressure on the Indian rupee against the US dollar.
Higher crude oil prices would likely stoke inflation. Experts estimate that a 10% rise in crude prices could increase wholesale inflation by 80–100 basis points and retail inflation by 20–30 basis points.
What Does This Mean for Investors?
The Israel-Iran conflict has already triggered significant volatility in global and Indian markets. Crude oil prices have surged to a five-month high amid fears that Iran could shut the Strait of Hormuz, a move that would disrupt nearly 20% of global oil supply and spell trouble for oil-importing nations like India.
Sectors heavily reliant on oil such as aviation, oil marketing, paints, tyres, automobiles, chemicals, and fertilisers are bearing the brunt. Rising crude prices raise input costs for these industries, potentially squeezing profit margins. On the flip side, oil-producing companies may benefit in the short term.
What’s Next?
Despite making similar threats in the past, Iran has never actually closed the Strait of Hormuz due to the severe economic fallout it would face. Recently, US President Donald Trump announced a complete ceasefire between Israel and Iran after a 12-day war that caused mass panic and displaced millions from Tehran. Following this announcement, oil prices dropped by 6% on Tuesday, reaching a two-week low. However, on the morning of June 25, prices rebounded after falling for two consecutive sessions.
That said, military actions have reportedly continued on both sides even after the ceasefire announcement. The truce remains fragile, with Trump accusing both nations of violating the agreement. This raises doubts about the durability of the ceasefire.
Tensions in the region persist, and the path ahead remains uncertain.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
