Why is News :
- Escalation in tensions between Iran and Israel has pushed up global oil prices, with Brent crude hitting a near 5-month high of $78.50/barrel on June 13, 2025. Though prices slightly cooled later, fears remain over possible supply disruptions, especially via the Strait of Hormuz.
Key Developments:
- Brent Crude Benchmark: Rose by ~9%, peaking at $78.50/barrel before stabilizing near $75.
- Immediate Trigger: Iran threatened to block the Strait of Hormuz, the world’s most critical oil chokepoint.
Strait of Hormuz: Strategic Significance
- Connects Persian Gulf to Gulf of Oman and Arabian Sea.
- Handles 20 million barrels/day — about 25% of global oil supply.
- Key exporters: Saudi Arabia, UAE, Iraq, Kuwait, Qatar, and Iran.
- 84% of this oil is destined for Asian economies including India.
Closure Threat Implications:
- Delays in global shipping.
- Surge in freight & insurance costs.
- Rising global oil and gas prices.
- Possible disruption of Suez Canal–Red Sea–India trade routes.
India’s Position and Preparedness
- Import Dependency: India imports 80%+ of its crude needs.
- While India doesn’t import oil from Iran, it’s highly vulnerable to global price spikes.
- Diversification Strategy:
- Expanded imports from Iraq, Saudi Arabia, UAE, U.S., and Russia.
- Russia now a major supplier, providing discounted crude amid Western sanctions.
- Government Stand:
- Petroleum Minister affirms no supply concerns; import basket is diversified.
- India’s strategic reserves and long-term contracts provide cushion.
Impact on Indian Economy
If sustained, high oil prices can:
- Widen current account deficit.
- Increase fiscal burden through fuel subsidies.
- Spike inflation, especially food and transport costs.
- Reduce corporate profitability and dampen private investment.
- Lower GDP growth; ICRA warns of downward revision if prices persist.
Global Outlook
IEA Outlook (June 2025):
- Market “looks well-supplied” if major disruptions are avoided.
- Forecasts global oil demand at 104.9 mb/d, up by 1.8 mb/d.
- Observes growing inventories (+93 million barrels in May alone).
- Strategic Assessment:
- While Iran’s production is under U.S. sanctions, its geographic position gives it leverage.
- Any military blockade or strike impacting Strait of Hormuz could have outsized effects on global energy markets.
Conclusion:
While current price spikes are moderate, the geopolitical sensitivity of the region and the Strait of Hormuz’s role in global oil trade mean energy security remains fragile. For India, diversification of sources, enhancing strategic reserves, and investing in renewables are key to long-term resilience.
| UPSC Relevance : GS Paper 2: International Relations GS Paper 3: Energy Security, Economy, Global Trade Mains Q Practice: Q. In the context of recent West Asian tensions, critically evaluate the importance of the Strait of Hormuz to global energy security and India’s energy strategy. |