Indian OMCs reassess crude sourcing as Strait of Hormuz disruption raises supply concerns

New Delhi: India’s oil marketing companies (OMCs) are re-evaluating their crude procurement options after reports of a de-facto closure of the Strait of Hormuz and heavy curtailment of oil and gas flows through the vital waterway, sources with direct knowledge told Energy Watch on the condition of anonymity. The Ministry of Petroleum and Natural Gas has convened consultations with refiners, taken stock of existing stocks, and is exploring alternative crude supplies from Africa and South America even as Opec+ agreed to a 206,000 barrels per day production increase to cushion global markets.

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Industry executives say the aim is to ensure continuity of feedstock for domestic refineries while mitigating the sharp price volatility triggered by the spiralling Middle East conflict.

Geopolitical flare-up shuts down Hormuz transit

According to reports, the intensifying confrontation involving Iran, the United States (US) and Israel has effectively halted significant volumes of seaborne crude and LNG shipments through the Strait of Hormuz — a chokepoint through which roughly one-fifth of global oil and gas trade normally passes. While Iran has not issued an official closure order, warnings by the Islamic Revolutionary Guard Corps to mariners and the suspension of routes by trading houses and insurers have had the same effect, leaving hundreds of tankers anchored in Gulf waters. Analysts say suspension of traffic in the strait has severe implications for global energy markets, particularly for major importers, including India.

Oil and gas prices surge on supply fears

Oil benchmarks have jumped sharply since the conflict escalation following the death of Iran’s Supreme Leader Ayatollah Khamenei on February 28: Brent crude briefly exceeded USD 82 per barrel — its highest level since early 2025 — before stabilising around the USD 78–80 range, up from roughly the low-USD 70s a week ago amid geopolitical risk premiums.

Natural gas futures have also responded to market anxiety. US benchmark natural gas futures have climbed into the USD 2.90–3.00 per MMBtu range, showing a marked uptick from recent weeks as LNG supply concerns linked to Hormuz disruptions rippled through global gas markets.

Energy analysts warn that prolonged disruption could drive Brent towards — or even beyond — USD 100 a barrel, depending on how entrenched the closure of Hormuz becomes and how swiftly alternative logistics are organised.

"The conflict in Middle East and reported attacks on several oil producers would exacerbate the volatility in crude oil prices. The Strait of Hormuz is a vital energy choke point through which about 20 percent of the global petroleum liquid and 20 percebt of the global liquified natural gas passes. As Iran and Middle East energy producers straddle the Strait of Hormuz, a conflict in the region would impede shipping of energy through the same. Additionally, any attack on oil and gas production facilities of other major Middle East producers would further aggravate the situation," said Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA Ltd.

"Already over the past few days, crude oil prices have risen from ~USD65/barrel to USD72-73/barrel now owing to the buildup of geo-political tensions in the region. A prolonged and/or widening conflict involving several oil and gas producers and Strait of Hormuz could adversely impact global crude oil and LNG supplies and raise prices of energy globally," said Vasisht.

Fatih Birol, the International Energy Agency's Executive Director, wrote on X that the agency is "actively monitoring" events and the potential implications for global oil & gas markets and trade flows. "Markets have been well supplied to date. I am in contact with ministers from major producers in the region & IEA governments about the situation," Birol wrote.

India’s structural exposure and alternatives

"In FY2025, about 50 percent of India’s crude oil and 54 percent of LNG imports were routed through the Strait of Hormuz. For Indian refiners while crude oil could be sourced from alternate locations such as the US, Africa, South America, however elevated energy prices could lead to a soaring import bill. Additionally elevated crude oil prices would moderate the marketing margins and profitability of oil marketing companies," said Vasisht.

Indian refiners currently hold around 10 days of crude inventory plus about a week of finished fuel stocks. To bridge any shortfall, New Delhi could tap into its strategic petroleum reserves, accelerate spot purchases from non-Hormuz regions, and diversify supply contracts with Russia, the United States, West Africa and Latin America. The presence of Russian barrels in floating storage nearby offers an additional buffer, industry data suggests, allowing refiners to pivot quickly if need be.

"Over the past two to three months, India’s dependence on Middle Eastern (West Asian) barrels has increased as refiners have pivoted away from a portion of Russian volumes. As a result, the relative weight of Gulf-origin crude in India’s import basket has risen, increasing short-term sensitivity to any disruption in Hormuz transit. Kpler tracking indicates continued availability of Russian cargoes in the Indian Ocean and Arabian Sea region, including volumes in floating storage. Should Middle Eastern inflows tighten, Indian refiners could pivot back toward Russian grades relatively quickly," said Sumit Ritolia, lead research analyst, refining & modelling at Kpler.

However, some segments — especially LPG and LNG imports — are more vulnerable due to higher regional dependency and thinner structural buffers. India lacks strategic stockpiles of comparable scale for these fuels, elevating logistical risks if Hormuz remains inaccessible.

Economic and policy implications

Higher crude prices directly inflate India’s import bill: historically, every USD 1 rise in oil adds about Rs 13,000 crore annually to the country’s energy import cost. In a broader macro context, Aditi Nayar, chief economist at ICRA, said the extent and duration of the West Asia crisis will influence inflation, trade balances and remittance flows — key components of India’s economic outlook.

Insurance, freight, and trade fallout

Freight costs and war-risk insurance premiums have surged as insurers classify the Persian Gulf and adjacent corridors as high-risk zones. Marine war-risk surcharges and potential withdrawal of coverage on certain routes are expected to lift shipping costs further, adding a second round of cost pressure on importers and exporters alike.

Gaurav Agarwal, vice president for marine insurance, Prudent Insurance Brokers said, "The Persian Gulf and the Red Sea–Suez Canal corridor have already been designated as high-risk zones for the past three years. Insurers have, therefore, been charging additional war risk premiums for cargo transiting through these waters. When global insurers and reinsurers resume office on Monday, we expect clarity on whether war risk rates will be further increased, coverage terms will be restricted or withdrawn for certain voyages, or the market will stabilise depending on geopolitical developments."

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As the situation evolves, Indian energy security planners are balancing short-term mitigation through alternate sourcing and inventory draws with longer-term diversification of supply networks — all while oil and gas prices react to geopolitical risk that could have broader global economic repercussions if sustained.