Strait of Hormuz – the narrow but strategically vital waterway through a fifth of world’s oil and gas transits and is supply lane for more than a third of India’s energy need – has never been shut and Iran has used shutdown threats as a diplomatic lever, analysts said.
Oil markets, they said, are well supplied, posing no threat to the world energy order.
The Strait of Hormuz, which lies between Iran to the north and Oman and the United Arab Emirates to the south, serves as the main route for oil exports from Saudi Arabia, Iran, Iraq, Kuwait, and the UAE. Many liquefied natural gas (LNG) shipments, especially from Qatar, also pass through the strait.
“Despite repeated threats, Iran has never closed the Strait of Hormuz due to the strategic and economic costs. The strait is essential for global energy flows, handling 20 per cent of oil trade and major LNG exports, and vital to Iran’s own economy and its regional allies,” said Hitesh Jain, Strategist, Institutional Equities Research at Yes Securities.
Instead, Tehran uses the threat as a diplomatic lever.
Icra said any escalation in the conflict in the area could significantly impact global supplies and prices.
Jain said oil markets appear well-supplied, with OPEC’s 4 million barrels per day spare capacity and a pre-conflict global surplus of 0.9 million bpd providing a buffer. The rise of US shale adds further resilience.
On the demand side, China’s weak recovery and the structural shift toward EVs are softening growth projections.
“Given this backdrop, Brent crude is unlikely to sustain levels above USD 80 per barrel in a durable way unless the Strait of Hormuz is closed, or critical Gulf infrastructure is targeted,” he said.
Icra projected crude prices to average between USD 70-80 per barrel for the current fiscal. “A sustained flare-up in the conflict poses upside risks for our estimates of crude oil prices, and consequently of net oil imports and the current account deficit (CAD). A USD 10 per barrel increase in the average price of crude oil for the fiscal will typically push up net oil imports by USD 13-14 billion during the year, enlarging the CAD by 0.3 per cent of GDP.”
India imports more than 85 per cent of its oil needs and about half of its gas requirement.
“Iran has threatened to close the Strait of Hormuz numerous times in the past but has never followed through, as doing so would be strategically and economically self-defeating,” Jain said. “The strait is vital as about 20 per cent of global oil and key LNG exports, especially from Qatar, transit through it. A real closure would provoke retaliation from US Naval Forces in the Persian Gulf, harm Iran’s own oil exports and imports, and undermine its diplomatic standing. Consequently, Tehran continues to use the threat as a bargaining tool without disrupting actual supplies.”
The Strait of Hormuz remains open despite threats, and additional buffers like US strategic reserves and flexible shale output further support market stability. “Hence, oil markets are unlikely to face a sustained supply shock,” he said.
Since 2008, US shale has boosted global supply and flexibility, helping markets absorb geopolitical shocks with only brief price spikes. OPEC’s reduced market share and higher spare capacity, mainly from Saudi Arabia and the UAE, have further limited volatility. This dynamic has kept oil prices more range-bound, with US shale acting as a soft ceiling on prices.
On the demand side, China’s post-COVID recovery remains weak due to economic restructuring and a sluggish property sector. Meanwhile, long-term trends like EV adoption, better fuel efficiency, and green policies are slowing demand growth in OECD nations.
Reflecting a more tempered consumption outlook, the IEA and EIA have both cut their 2025 global oil demand forecasts by 0.2-0.28 million barrels per day.
Icra said Iran’s crude oil production is around 3.3 million bpd, of which it exports 1.8-2.0 million bpd. “While Iranian oil and gas facilities have reportedly been attacked, the extent of damage is not clear. However, any disruption of Iranian production and supplies or a wider regional conflict impacting other large producers in the region could push energy prices higher.”
Crude oil imports from Iraq, Saudi Arabia, Kuwait and the UAE that pass through the Strait of Hormuz account for around 40-45 per cent of total crude imports by India. About 60 per cent of the natural gas imports by India pass through the Strait.
“At these elevated crude oil prices, while the profitability of upstream players will remain healthy and their capex plans will remain intact, the marketing margins of downstream players will be impacted along with the expansion of LPG under-recoveries,” Icra added. PTI
