Strait of Hormuz Crisis: India Braces for Energy Supply Chain Disruptions

The ongoing West Asian crisis has fundamentally altered the risk landscape for global energy logistics, forcing major importers like India to reconsider their supply chain resilience. Sonal Varma, Managing Director and Chief Economist for India and Asia ex-Japan at Nomura, warns that 'uncertainty is the new normal.' This shift requires a strategic pivot toward maintaining substantial buffers to mitigate the impact of extreme volatility. The current conflict is not merely a price shock; it represents a potential physical supply shortage reminiscent of the disruptions seen during the 2022 Russia-Ukraine war and the early stages of the pandemic.

At the heart of this disruption is the Strait of Hormuz, a narrow waterway that serves as the world's most critical energy chokepoint. Approximately 20 million barrels of oil transit through the Strait daily, representing roughly 20% of global oil demand. For the logistics and procurement sectors in Asia, the stakes are particularly high. Between 80% and 90% of the oil and liquefied natural gas (LNG) that passes through the Strait is destined for Asian markets. As a net importer of crude oil, LNG, and coal, India finds itself at the epicenter of this vulnerability. Any prolonged blockage or threat to navigation in these waters directly translates to increased landed costs for energy and raw materials.

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Between 80% and 90% of the oil and liquefied natural gas (LNG) that passes through the Strait is destined for Asian markets.

The impact on the Indian economy is expected to manifest through multiple channels. Even if the government manages to keep domestic fuel prices stable at the pump, the broader inflationary pressure will be felt across the manufacturing and logistics sectors. Higher energy costs inevitably lead to increased transportation overheads and higher input costs for energy-intensive industries. However, there is a silver lining: Nomura notes that the growth impact may not be entirely negative, as countercyclical policy easing has already begun to sow the seeds of a cyclical recovery. This suggests that while the supply chain faces immediate stress, the underlying economic framework may have some capacity to absorb the shock if managed correctly.