India can absorb the higher costs of energy transported to bypass the Hormuz Strait provided a prolonged closure does not affect crude oil and LNG production in the Persian Gulf. Producing nations in West Asia supply around half of India's crude and LNG imports, and it is critical that the US military presence keeps shipping lines open in the Gulf. Producer storage capacities were about half full before the conflict erupted, and will fill up in a matter of days if Iran persists in choking the strait. Iranian missile strikes in neighbouring countries targeting energy infrastructure are similarly designed to affect production. Iran's main leverage remains a potential energy shock to the global economy.
India has diversified its energy sourcing over the past couple of years and recently raised the share of the Persian Gulf producers over US objections to buying Russian crude. It is also raising the share of energy imports from Africa and the Americas. The country holds slightly over a month's requirements as strategic oil reserves, which covers the period that Donald Trump has indicated may be needed for a resolution of the Iran situation. Beyond that, India may need to explore alternative energy sourcing, including from Russia. The blockade of Hormuz has a bearing as well on India's exports to the region, which are routed through the UAE.
Higher freight costs on account of war risk and longer routes present a smaller challenge in managing India's energy trade than a drop in global energy supply. The economy is going through a sweet spot of strong growth and benign inflation. This picture is dependent on energy prices returning to pre-conflict levels within a reasonable time frame. The main argument for de-escalating the conflict, which the markets appeared to have priced in initially, is the US' ability to avoid an energy shock as it undertakes regime change in Iran. Energy prices are not yet displaying exaggerated concern over supplies. Those concerns will magnify as the Hormuz chokehold lengthens.
India has diversified its energy sourcing over the past couple of years and recently raised the share of the Persian Gulf producers over US objections to buying Russian crude. It is also raising the share of energy imports from Africa and the Americas. The country holds slightly over a month's requirements as strategic oil reserves, which covers the period that Donald Trump has indicated may be needed for a resolution of the Iran situation. Beyond that, India may need to explore alternative energy sourcing, including from Russia. The blockade of Hormuz has a bearing as well on India's exports to the region, which are routed through the UAE.
Higher freight costs on account of war risk and longer routes present a smaller challenge in managing India's energy trade than a drop in global energy supply. The economy is going through a sweet spot of strong growth and benign inflation. This picture is dependent on energy prices returning to pre-conflict levels within a reasonable time frame. The main argument for de-escalating the conflict, which the markets appeared to have priced in initially, is the US' ability to avoid an energy shock as it undertakes regime change in Iran. Energy prices are not yet displaying exaggerated concern over supplies. Those concerns will magnify as the Hormuz chokehold lengthens.
