Why the Strait of Hormuz Is Critical for India

Context

Tensions between the United States and Iran have cooled traffic in the Strait of Hormuz, a concern for global energy supplies and India’s energy security, especially as crude oil prices rise.

Key Highlights

• New tensions between the United States and Iran have severely damaged shipping through the world’s most vital energy chokepoint: the Strait of Hormuz.
• With the drop in vessel traffic, crude oil prices are increasing and the world is once again concerned about energy security, supply chains, and maritime stability.
• The crisis has significant economic and strategic consequences for India, a country that is heavily reliant on energy importation from this route.

Why is the Strait of Hormuz important?

• The Strait of Hormuz is the link between the Persian Gulf and the Gulf of Oman and the Arabian Sea.
• One of the most heavily used sea trade lanes in the world.
• This strait is used for almost 20 percent of all crude oil and liquefied natural gas (LNG) shipments in the world.
• It is the main route for the major exporting countries like Saudi Arabia, Iraq, Kuwait, UAE, Qatar and Iran.

Reasons Behind the Current Crisis

• Military tensions between the U.S. and Iran are escalating.
• The attacks on commercial vessels and the resulting higher risk in shipping.
• Limits on shipping and the use of the strait for navigation.
• Increasing doubts on freedom of navigation and safe passage.
• Enhancement of alternate/defensive shipping routes for commercial shipping.

Implications for Global Energy Markets

• Rise in Oil Prices

  • Shrinking shipping activity has drawn the corners on energy supply.
  • Fears of supply disruptions have led to rising international crude oil prices.
  • The rising cost of transportation and insurance has pushed up energy costs.

• Supply Chain Disruptions

  • Slowdown in crude oil, LNG and LPG imports.
  • Increased freight charges and shipping risks.
  • More volatility in global markets for commodities.

Impact on India

• Energy Security Concerns

  • India continues to be significantly dependent on imports:
    • The Strait of Hormuz is the route for about 40% of crude oil imports.
    • This is the route used for almost 60% of imports of LNG.
    • The strait is the source of 90% of LPG imports from West Asia.

• Rising Import Bill

  • Every surge in the global crude oil prices automatically leads to a rise in India’s import bill for India in the year.
  • An upward trend in prices will also expand the current account deficit and fiscal pressure.

• Inflationary Pressures

  • If the energy prices are higher, then:
    • Increased transport costs.
    • Higher manufacturing expenses.
    • Rising food inflation.
    • Greater burden on households and industries.

• Strategic Vulnerability

  • India is highly vulnerable to geopolitical shocks due to its reliance on hydrocarbon imports.
  • The disruption of shipping has a direct impact on national energy security and economic stability.

Government Response

• Multi-sourcing of crude oil supplies.
• Strategic petroleum reserves to cushion short-term disruptions.
• Steps for uninterrupted supply of fuels to priority sectors.
• Increasing diplomatic relations with Gulf States.
• Support for renewable energy and alternative fuels under the National Green Hydrogen Mission and energy transition plans.

Way Forward

• Expand energy supply options and lessen reliance on one energy supply area.
• Increase Strategic Petroleum Reserves (SPR) for emergency preparedness.
• Promote the use of renewable energy, green hydrogen and biofuel.
• Improve maritime security cooperation in the Indian Ocean Region.
• Improve the diplomatic situation and promote freedom of navigation and regional stability.
• Upgrade energy efficiency in homes and encourage alternative fuel for moving around.

Conclusion

• Geopolitical tensions in West Asia will be a key worry for global energy markets, as is the Strait of Hormuz, one of the world’s most important maritime chokepoints. 
• A combination of diplomatic effort, energy diversification, strategic energy reserves and speeding up the transition to clean energy is necessary for India to ensure an uninterrupted energy supply. Creating energy resilience for the long-term will be critical to ensuring economic progress and national security.

Source: The Indian Express

Prelims PYQ

Q. Between India and East Asia, the navigation time and distance can be greatly reduced by which of the following? (2011)

1. Deepening the Malacca straits between Malaysia and Indonesia.
2. Opening a new canal across the Kra isthmus between the Gulf of Siam and Andaman Sea.

Which of the statements given above is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

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