The reopening of the Strait of Hormuz following a US-Iran peace agreement is expected to bring significant relief to India by improving energy supply security, lowering crude oil prices and freight costs, and easing inflationary pressures in one of the world's largest oil-importing nations.
The strategic waterway between Iran and Oman carries about one-fifth of global oil consumption and serves as the main export route for key Gulf producers such as Saudi Arabia, Iraq, Kuwait, the United Arab Emirates and Qatar, all major energy suppliers to India.
Supplies of crude oil and natural gas through the strait had been disrupted since the outbreak of the Iran conflict at the end of February, triggering a surge in crude prices, shipping insurance premiums and freight rates. Industry sources and analysts said the restoration of shipping traffic and easing geopolitical tensions would help stabilise global energy markets and improve the outlook for energy-importing countries, including India.
Oil prices declined on Sunday after US President Donald Trump announced that the United States had reached a ceasefire agreement with Iran that would allow the "toll free" passage of ships through the Strait of Hormuz.
"I hereby fully authorize the toll free opening of the Strait of Hormuz, and, simultaneously herewith, authorize the immediate removal of the United States Naval blockade," US President Donald Trump posted online. "Ships of the World, start your engines. Let the oil flow!"
Following the announcement, Brent crude, the global oil benchmark, fell about 4 per cent to around USD 84 per barrel.
Global oil prices had climbed to as high as USD 119 per barrel at the peak of the conflict, up from USD 70-72 a barrel in February. The surge increased the cost of producing petrol and diesel, though the government deferred retail price revisions until mid-May. On March 27, it cut excise duty on petrol and diesel by Rs 10 per litre each to avoid a price increase during assembly elections in five key states, including West Bengal.
After the elections, petrol and diesel prices were raised by around Rs 7.50 per litre each, while CNG rates increased by Rs 6 per kg. LPG prices were also raised by Rs 89 per 14.2-kg cylinder in two instalments.
Despite these increases, state-owned fuel retailers continue to incur losses of about Rs 650 crore per day because retail fuel prices remain below cost.
Industry sources said the easing of crude prices and the reopening of the Strait would gradually reduce these losses.
"State-owned fuel retailers booked losses in one quarter that were equal to the profit they earned in the entire year," an industry official said. "If the agreement holds, energy supplies will ease and so will the prices"
India's response to disruptions
Before the conflict, India imported more than 88 per cent of its crude oil requirement, with nearly half sourced from Gulf producers whose exports pass through Hormuz. The country was also 60 per cent dependent on imports for LPG, with about 90 per cent of supplies arriving through the strait. India met half of its natural gas requirement through imports, of which 65 per cent came from countries such as Qatar and the UAE.
The conflict disrupted LPG supplies and natural gas shipments from Qatar, India's largest liquefied natural gas (LNG) supplier.
In response, natural gas allocations were rationalised, with supply cuts imposed on certain users. LPG supplies to commercial consumers such as hotels and restaurants were initially curtailed and later restored to about 70 per cent of requirements. Refill booking timelines for household consumers were also extended.
The government and refiners simultaneously intensified efforts to diversify crude oil procurement beyond traditional Gulf suppliers. Indian refiners increased sourcing discussions with producers in Russia, Africa, the United States and Latin America to secure alternative cargoes in the event of prolonged disruptions in the Middle East.
Natural gas buyers explored additional procurement options and closely tracked spot LNG markets to secure supplies.
Authorities reviewed fuel inventories across the supply chain and worked with oil marketing companies to maintain adequate stocks of petrol, diesel, LPG and aviation turbine fuel at depots and retail outlets.
Last week, the government notified provisions allowing temporary restrictions on bulk purchases of petrol and diesel through retail fuel stations, citing risks of diversion and localised shortages.
Industry executives said oil companies also reviewed contingency plans covering shipping routes, vessel availability and cargo scheduling to ensure uninterrupted supplies under various disruption scenarios.
Reopening of Strait
Industry sources said the restoration of uninterrupted shipping through Hormuz would reduce the risk of supply delays and help refiners maintain predictable procurement schedules.
Lower crude prices are expected to be among the most immediate benefits. A sustained decline in oil prices would reduce India's import bill, support the rupee, narrow the current account deficit and ease inflationary pressures. Indian refiners would also benefit from lower shipping and insurance costs.
Lower fuel prices can help reduce transportation costs, ease pressure on manufacturers and moderate the prices of goods ranging from food products to construction materials, industry sources said.
A normalisation of traffic through Hormuz would also provide policymakers with greater flexibility in managing energy and economic policy, containing inflation and maintaining fiscal discipline by reducing geopolitical risks in the Gulf.
The gains could be particularly significant for sectors such as aviation, petrochemicals, fertilisers, shipping and logistics, all of which are highly sensitive to energy costs.