Syllabus:

GS2: Effect of policies and politics of developed and developing countries on India’s interests.

Context: 

Iran’s Parliament has approved a proposal to close the Strait of Hormuz, though the final decision rests with the Supreme National Security Council, as reported by Iran’s Press TV on June 22.

More on the news:

• This development follows the US airstrikes on three Iranian military sites, escalating tensions and raising concerns over Iran’s potential retaliation. 

• While experts previously dismissed the likelihood of such a drastic move, recent events suggest Tehran may look to block the strait.

• Meanwhile USA has urged China to dissuade Iran from taking this step, warning that a blockade would amount to “economic suicide” for Tehran, given China’s heavy reliance on Hormuz for oil imports.

Strait of Hormuz: 

• The Strait of Hormuz is a narrow maritime passage connecting the Persian Gulf with the Gulf of Oman, which opens into the Arabian Sea. 

• It serves as the primary route for oil exports from major producers like Iran, Saudi Arabia, and the UAE. 

• The strait lies within the territorial waters of Iran and Oman and is one of the world’s most critical chokepoints for global oil trade.

• At its narrowest point, the strait spans just 33km, with shipping lanes only 3km wide in each direction. 

• This geography makes it vulnerable to blockades or military disruptions, posing significant risks to global energy supplies.

Importance of Strait of Hormuz:

• A Lifeline for Global Oil Trade: According to the US Energy Information Administration (EIA), over 25% of global seaborne oil trade and 20% of worldwide oil consumption passed through the Strait of Hormuz in 2024. 

• Additionally, 20% of liquefied natural gas (LNG) trade transited the strait, primarily from Qatar.

• No Viable Alternatives: There are no alternative sea routes, meaning any disruption would force oil shipments through costly and limited overland pipelines. For instance: 

• Saudi Arabia’s East-West Pipeline (5 million barrels per day) redirects oil to the Red Sea.
• The UAE’s Fujairah Pipeline (1.8 million barrels per day) bypasses the strait via the Gulf of Oman.
• However, these alternatives are insufficient compared to the 20 million barrels per day that typically flow through Hormuz. 

Impact on Iran for blocking the Strait:

• Historical Precedents and Strategic Risks: Iran has never fully closed the strait, even during the Iran-Iraq War (1980-88), when both nations attacked ships but avoided a complete shutdown. 

• Economic Self-Harm: Iran relies on the strait for its own trade, and a blockade would hurt allies like China, its largest oil buyer.

• Trade Disruptions: If China shifts demand due to Iranian supply cuts, global oil markets could face further strain.

• Geopolitical Fallout: Saudi Arabia and other Gulf nations, now improving ties with Iran, would oppose such a move.

• US Military Presence: The US Fifth Fleet in Bahrain could swiftly counter Iranian actions, though delays in restoring normalcy would still cause market chaos.

Impact on India if the Strait is Blocked:

• Energy Security: India imports 84% of its crude oil and 83% of LNG via the Strait of Hormuz, as per EIA data. 

• Price Volatility: While India diversifies suppliers (Russia, US, Africa), a blockade would still trigger price surges, disrupting fiscal stability.

• Inflation Risks: Higher fuel costs would elevate transportation and manufacturing expenses.

• Strategic Vulnerability: Prolonged instability may force India to reassess energy routes and stockpile reserves.