The Wall Street is shaken, Equity in the in the Indian market opened sharply lower. The retailing is hit hard and the policy makers call out for the emergency measures. How can Strait of Hormuz can leave such impact on Indian market?
Strait of Hormuz is a narrow channel of 21 miles between Oman and Iran and nearly 40% of Indian crude oil and 50% of its LNG flows through the single check point. If Hormuz is disturbed or threatened, it’s just not the hike up in the price. It will have much bigger negative impact. It can lead to inflation and destabilizes the currency.
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Hormuz may look like a thin line on the map, but its role in the global economy is very imperative.
The narrow passage of 21 miles width links Persian Gulf (Iran) to the Arabian Sea and on the other side it also connects Oman and the UAE. Every day almost 20 million Barrels of oil passes through this strip amounting to 20 % of the global oil and nearly one fifth of the world’s LNG trade.
India sources a significant energy from the Middle East and 40% of India’s crude oil come through Hormuz. Around 42 to 53% of India’s LNG comes from Qatar and UAE. Iraq, Saudi, Kuwait and UAE are important suppliers of India and they all have to come through Hormuz to reach the Indian shores. India presently imports 5.5 million barrels per day (bpd), of this 2.2 bpd comes via Hormuz, thus making India vulnerable. Any minor issues of military standoff, sanctions, or the naval blockade can hinder India’s energy lifeline.
On June 22 Iran’s parliament voted a resolution authorizing the closure of Hormuz. Within hours Brent Crude surges to five month high, touching 78.89 per barrel.
Though the passage is open India, the vulnerability remains. Sourcing from Russia cannot be the solution and Russia alone cannot fulfil India’s energy requirement.
Despite making the supplier base wider, the dependency on Hormuz continues and India should play both diplomatic and back door channels to keep our supply chain consistent and stable.