Flip-flops on Hormuz keep India refiners on the edge as crude spikes

India's Refiners Navigate Uncertainty Amid Hormuz Turbulence

Flip flops on Hormuz keep India - India's reliance on global oil markets has intensified following recent fluctuations in the Strait of Hormuz. US President Donald Trump's Monday proposal to charge a 20% fee on vessels transiting the waterway initially caused a sharp rise in crude prices, prompting fears of inflationary pressures and slower economic growth. However, Trump later abandoned the fee plan, shifting focus to a targeted blockade of Iranian-linked ships. This change has eased some concerns but highlighted India's exposure to supply chain disruptions.

Crude Prices and Financial Implications

Brent crude prices surged by 5% on Tuesday, reaching over $87 per barrel, before retreating to around $85 following Trump's reversal. India, which sources about 90% of its crude oil from overseas, spends over $120 billion annually on imports. Even a $1-per-barrel increase in prices could raise the annual import bill by approximately Rs18,000 crore. Oil imports typically account for 17-25% of India's total import costs.

“The supply scenario is again back to what it was a month ago. Refiners had diversified oil imports, so sourcing from non-West Asian sources would continue. Now, they are aware of the situation and also the alternatives for energy supplies,” said Manas Majumdar, leader of the oil and gas team at PwC India.

Refiners' Strategic Position

Indian refiners have secured supply contracts up to August and expanded their procurement beyond West Asia, according to Mint. While this positions them to meet immediate demand, inventory levels are currently lower than before due to the delayed replenishment period. Manas Majumdar noted that a prolonged conflict could have created a more challenging scenario with higher stock shortages.

“Compared with last year, every $10 per barrel increase in crude prices translates into roughly $42 million per day in additional import costs for India. The impact will materialize slowly, as near-term procurement is already finalized,” explained Pankaj Srivastava, senior vice-president of commodities markets at Rystad Energy.

Inflation and Economic Challenges

Oil price volatility has already contributed to inflationary pressures in India, the world's sixth-largest economy. The wholesale price index rose to 9.87% in June, up from 9.68% in May, driven by higher costs for food and energy. This comes as the El Niño phenomenon and weaker monsoons are expected to further strain economic activity. The Reserve Bank of India recently reduced its fiscal year growth forecast to 6.6% from 6.9%, citing risks like the West Asia conflict and energy price increases.

Strait of Hormuz Disruptions

The Strait of Hormuz, a critical artery for global oil trade, has seen a dramatic decline in vessel traffic. Daily crossings dropped to just 11 on 12 July after Iran closed the waterway during the day, citing "illegal movements of US military forces." This marked the lowest daily level since 14 June and the first day without any inbound crossings since 12 June. S&P Global Commodities at Sea reported 73 vessels transiting the strait during 10-12 July, averaging fewer than 25 crossings per day.

Trump's latest post on Truth Social emphasized that "oil is flowing like never before" and the strait remains open to all traffic except for ships tied to Iran. His comments underscored the geopolitical tensions that have disrupted the waterway, which handles roughly a fifth of the world’s oil and gas supplies. Despite the recent calm, the situation remains fragile, with ongoing security risks influencing supply flows and market stability.