The closure of the Strait of Hormuz, following U.S. and Israeli strikes against Iran on February 28 and subsequent Iranian retaliation targeting ships in the corridor, has created significant energy supply disruptions in the region [2]. This event has disproportionately impacted India, which relies heavily on the Middle East for imports of Oil, Liquified Petroleum Gas (LPG), and Natural Gas Liquids. According to MUFG’s Senior Currency Analyst Michael Wan, virtually all of India’s LPG and Natural Gas Liquids imports come from the Middle East, and 60% of its natural gas imports are sourced from the region, particularly Qatar [1]. The difficulty in storing and transporting natural gas exacerbates the risk of prolonged disruption, with spillover effects expected in sectors such as fertilizer and food production, potentially leading to stagflation risks [1].
MUFG estimates that every US$10 per barrel increase in oil prices reduces India’s GDP growth by 0.1–0.2 percentage points and raises inflation by about 0.2 percentage points [1]. If oil prices rise to US$100 per barrel on a sustained basis, India’s FY2026/27 GDP growth could fall below 6.5% and inflation could exceed 4.5%, compared to the current forecast of 7% growth and a baseline oil price assumption of US$70 per barrel [1]. The bank notes that these historical sensitivities may underestimate the macro impact, as the current crisis involves not only higher oil prices but also potential energy shortages and indirect spillovers across sectors [1].
To partially offset the blockage, Saudi Arabia and the UAE have increased utilization of alternative pipelines that bypass the Strait of Hormuz. Saudi Arabia’s East-West pipeline (Petroline) has a design capacity of 7 million barrels per day, and Saudi oil giant Aramco expects the network to reach full capacity in the coming days [2]. The UAE’s Abu Dhabi Crude Oil Pipeline (ADCOP) can handle 1.5 million barrels per day, with a reported total capacity of close to 1.8 million barrels per day. According to Kpler analyst Naveen Das, the ADCOP pipeline is currently operating at 71% utilization, leaving around 440,000 barrels per day of spare capacity, and ADNOC can temporarily raise throughput to 1.8 million barrels per day if required [2]. However, the risk of infrastructure damage amid the ongoing Middle East crisis could limit these capacity estimates, as evidenced by the closure of the UAE's Ruwais refinery following a fire at the facility [2].
Energy analysts note that while the East-West pipeline and ADCOP can help partially offset the nearly 20 million barrels per day that typically transit through the Strait of Hormuz, the risk of attacks and infrastructure damage remains a significant challenge [2].
CONCLUSION
The closure of the Strait of Hormuz has triggered substantial energy supply risks for India and the broader region, with potential negative impacts on growth and inflation. While Saudi Arabia and the UAE are increasing pipeline utilization to mitigate the disruption, the risk of infrastructure damage and limited capacity means the market impact remains high. The situation continues to pose significant challenges for energy-dependent economies and global oil markets.