Strait Of Hormuz, Red Sea Tensions Could Disrupt India’s Trade, Spike Oil Prices

The escalating conflict between Israel and Iran is threatening to disrupt key global shipping lanes, exposing India to mounting supply chain risks, according to the Global Trade Research Initiative.

While India’s trade with the two countries, about $3.8 billion combined in FY25, is notable, GTRI Founder Ajay Srivastava warns that the real danger lies in India's dependence on vulnerable chokepoints for energy and trade.

While India doesn't import oil directly from Iran, nearly two-thirds of India’s crude oil and half of its LNG imports pass through the Strait of Hormuz, which Iran has now threatened to close. Any disruption could spike global oil prices, inflate shipping and insurance costs, and intensify pressure on India’s inflation and fiscal balance.

In FY25, India imported crude oil worth $143.1 billion, translating to an estimated 202.7 million tonnes, according to data from Petroleum Planning & Analysis Cell and GTRI.

Russia led the pack, supplying oil worth $50.3 billion, equivalent to 71.3 million tonnes, underscoring its dominance in India’s energy mix. Iraq was the second-largest source, with $27.4 billion in imports amounting to 38.8 million tonnes. Saudi Arabia followed, sending $20.1 billion worth of crude or 28.5 million tonnes. Imports from the UAE surged to $13.9 billion and 19.7 million tonnes, reflecting India’s pivot towards diversification. The USA contributed $6.6 billion worth of crude, totalling 9.4 million tonnes, while Kuwait supplied $4.0 billion or 5.7 million tonnes.

Meanwhile, rising hostilities in the Red Sea, following Israel’s June 14–15 strike on Houthi leaders in Yemen, have put the Bab el-Mandeb Strait at risk. Nearly 30% of India’s westbound exports to Europe and the US pass through this route. A rerouting around the Cape of Good Hope could extend shipping time by two weeks and sharply raise freight costs.

“India’s engineering goods, chemicals, and textiles exports would be hit hard, while input costs for critical imports could soar,” Srivastava said, urging the government to put in place contingency plans.

Hostilities between Israel and Iran entered the fourth day on Monday, with no sign of easing, stoking fears of a wider war in the oil-rich region.

Iran fired several waves of drones and missiles over the last 24 hours, while Israel hit the Islamic Republic’s capital, Tehran, killing another key military official. Death tolls across borders are feared to have reached roughly 300, with no truce in sight so far.