With the US and Iran blowing hot and blowing cold, it is very difficult to predict the events in the Persian Gulf and Hormuz Strait. The initial framework agreement, which seemed to be close at hand for some time, is still elusive. Even if such an agreement is signed in the next few days, the prospects of durable peace are still distant. Anytime, the Strait could be shut down again. In any case, opening the Strait for maritime traffic will not immediately restore supplies of oil, gas, fertiliser and other vital commodities. It will take months for the restoration of normalcy and cessation of the hardship and economic headwinds resulting from the current disruption. Most troublesome of all, the closure of the Hormuz Strait sets a precedent.

Earlier, oil shocks were essentially price shocks because of the cartel formation of oil-exporting countries; the current crisis is a supply disruption. Now that the unthinkable—closure of a vital sea route—has happened, it could happen again at any time in the future.

What does all this mean for India?

We import about 90% of oil and more than 50% of LPG. Our trade deficit is almost entirely because of energy import dependence. In FY 2026, our total energy imports were about $162 B, while the trade deficit was $119.3 B. If the disruption and high prices continue, in FY 2027, the energy import bill could be upwards of $240 B. If you add the higher import cost of fertilisers, it will add another $25-30 B to the import bill. On top of the trade deficit, high oil and gas prices inevitably fuel inflation, increase the subsidy bill (non-recovery of cost and fertiliser subsidies), and lead to a higher fiscal deficit. All this leads to lower economic growth as investments (public, private, domestic, and FDI) dry up. There is a real risk........

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