By Nantoo Banerjee
The prolonged blockade of the Strait of Hormuz, lately due to the ego tussle between the United States and Iran, have inflicted severe financial, operational, and human costs on India’s merchant marine industry and broader import-export trade. But, thanks to an excellent supply chain management effort, it failed to impact the country’s economic growth. With roughly 40 percent to 50 percent of India’s crude oil, 80–85 percent of LPG, and 60 percent of LNG imports reliant on the Hormuz corridor, Brent crude spikes (crossing $90–$126 per barrel) inflated India’s annual import bill by an estimated US$ 60 billion. This weakened Indian Rupee further vis a vis US$ and other currencies. Daily vessel transits through the strait plummeted from a pre-crisis average of 129–140 ships down to single-digit or near-zero levels during peak blockades. Iran claims domestic control over the strait and the right to regulate or levy transit fees, while the United States and its allies demand unrestricted freedom of navigation under international maritime laws
Over 20,000 seafarers were left stranded in the Gulf, including dozens of Indian-flagged vessels and hundreds of Indian seafarers trapped west of the strait. Maritime war-risk insurance premiums surged by over 1,000 percent, climbing up to three percent of total vessel valuation per voyage. Indian ports like Nhava Sheva (JNPT) and Mundra faced massive waves of unplanned, diverted Gulf-bound cargo discharges, overwhelming yard and transshipment capacities. Meanwhile, shipping services operating along alternative Eastern and Red Sea corridors surged from 127 to 257 lines as an emergency fix. Even that has come under the attack of Iran sponsored Houth rebels, who have significantly escalated control and attacks along the Red Sea Corridor and the strategic Bab el-Mandeb Strait. Last month, Houthi forces captured the port city of Mokha, Mayun Island (Perim Island), and the Greater and Lesser Hanish islands, expanding control along Yemen’s Red Sea coastline.
The Houthis declared a naval blockade on Saudi-linked and specific commercial vessels in the Bab el-Mandeb Strait, while launching retaliatory missile and drone strikes against Saudi infrastructure and airports. The Saudi-led coalition responded with airstrikes targeting Houthi-held fuel depots and military sites in Sanaa, Hodeidah, and Dhamar. The fighting and transport risks have sharply reduced transit volumes through the Suez Canal route. It is a matter of great concern that the continuing intense military operations and political stalemates seem to convey that no party is genuinely interested in pursuing political and economic stability in the region. The diplomatic records and ongoing negotiations indicate a more complex reality. The deep mutual distrust among the belligerent groups is hindering a comprehensive settlement although multiple stakeholders remain actively engaged in seeking peace due to the devastating global economic and humanitarian toll of the conflict.
Fortunately, the Indian economy has demonstrated exceptional resilience amid the West Asian Gulf conflict, weathering severe supply chain shocks to project a record economic growth rate of seven percent or even beyond. The country’s projected real GDP growth rate for the financial year 2026–27 is 7.0 percent to 7.1 percent across major global and domestic institutions. The International Monetary Fund (IMF) has upgraded India’s economic growth projection to 7.0 percent from an earlier 6.4 percent. Lately, the Reserve Bank (RBI) has raised its forecast to 7.1 percent. The OECD too revised its outlook to 7.1 percent while the S&P Global Ratings and Moody’s have projected the economic growth for the current financial year at 7.0 percent.
Despite its high structural vulnerability—including importing roughly 89 percent of its crude petroleum oil and over 30 percent of its total fertiliser needs – India has been able to avoid a major stagflationary crisis through aggressive supply diversification, calibrated internal burden-sharing, and a touch of macroeconomic good fortune. As the West Asian Gulf conflict triggered the partial or full closure of the crucial Strait of Hormuz, India rapidly shifted its import dependency away from immediate Persian Gulf choke points. India boosted its non-Hormuz oil procurement from 55 percent to 70 percent, leveraging US waivers to deepen discounted crude purchases from Russia and securing alternative cargoes from Venezuela and West Africa. While the Gulf region traditionally supplies nearly 70 percent of India’s imported urea, the country mitigated immediate agriculture shocks by securing supply commitments from alternative exporters, such as China resuming its global fertilizer shipments.
Instead of allowing immediate global price shocks to spiral into rampant domestic hyperinflation, the government of India deployed a highly strategic “burden-sharing” policy framework. The state and state-backed Oil Marketing Companies (OMCs) deliberately absorbed the initial brunt of the fiscal shock. A $6.2 billion stabilization fund was mobilized alongside targeted fuel excise duty cuts and expanded agricultural subsidies. Price increases were systematically passed onto commercial industrial users first before being allowed to gradually trickle down to retail households, safeguarding private consumption from a sudden collapse.
Unlike some of the countries such as the Philippines, Sri Lanka, Bangladesh, Pakistan, Egypt, Slovenia, and Kenya, which experienced crippling fuel shortages and rationing, India’s massive domestic refining infrastructure acted as a strategic shield. The country’s refining edge helped. India imports raw crude rather than finished petroleum products, allowing local refiners to quickly process alternative oil grades into diesel, petrol, and LPG. Over the last decade, India grew its total emergency buffer—including strategic petroleum reserves and OMC commercial inventory—to support roughly 74 days of national demand, ensuring the real economy faced zero physical shortages.
In this context, it may be mentioned that India’s Chief Economic Advisor V. Anantha Nageswaran noted that “sound policy and good fortune both played their part”. While global oil prices initially crossed $120 per barrel following maritime blockades, they did not stay at catastrophic highs for long. Severely reduced crude demand from a slowing Chinese economy, combined with strategic crude releases from the US Strategic Petroleum Reserve, helped pull India’s oil import basket back below $100 per barrel by mid-year, providing substantial fiscal relief. This explains why the prolonged Hormuz blockade brought practically no major impact on the Indian economy. (IPA Service)
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