Hormuz Strait Blockade: India's Energy Crisis Deepens

Key Points

• The blockade of the Strait of Hormuz has triggered an unprecedented disruption of gas supplies, according to energy expert Purva Jain (IEEFA)
• India is heavily dependent on gas supplies from Qatar and the United Arab Emirates
• According to the Federal Reserve Bank of Dallas, global growth could decline by an annualized 2.9 percentage points in the second quarter of 2026 if the Strait of Hormuz remains closed
• Bank analysts forecast oil prices temporarily exceeding $120 per barrel if Hormuz supply remains severely restricted
• Since independence, Indian states have heavily subsidized electricity prices, straining finances and hindering investments in clean energy

An Energy Crisis of Historic Proportions

The blockade of the Strait of Hormuz has plunged South Asia into an unprecedented energy crisis. Purva Jain, energy expert at Indian economic think tank IEEFA, is clear: while there have been energy shortages from time to time, "never before has there been such a disruption of gas supplies." The Strait of Hormuz is one of the world's most important trade routes—roughly one-fifth of globally consumed crude oil passes through this waterway between the Persian Gulf and the Gulf of Oman.

Iranian attacks on refineries in Gulf states are exacerbating the situation. The blockade has already rattled world markets and massively driven up the prices of oil and gas. For India, the world's fifth-largest economy, the situation is becoming a stress test for the entire economic model.

Why India Is Particularly Vulnerable

India is among the most severely affected countries by the Hormuz blockade. The reason lies in its extreme dependence on gas supplies from Qatar and the United Arab Emirates. Both countries can currently export their energy only with great difficulty or only via major detours—the Strait of Hormuz forms the bottleneck.

This dependence makes India one of the most vulnerable countries to supply disruptions in the Middle East. The International Energy Agency (IEA) warns of historic shortages in the global energy market. Bank analysts have revised their oil price targets upward and forecast that prices could temporarily exceed $120 per barrel should Hormuz supplies remain severely restricted.

Global Growth Risks in the Second Quarter of 2026

Model calculations by the Federal Reserve Bank of Dallas show substantial macroeconomic risks: if the Strait of Hormuz were closed, global growth in the second quarter of 2026 could decline by an annualized 2.9 percentage points. This forecast illustrates the systemic importance of the waterway for the global economy.

For India, a global growth decline of this magnitude represents a double shock: direct effects from missing energy imports compound indirect effects from weaker export markets. The Indian economy, which has recorded growth rates exceeding 6 percent in recent years, faces a significant correction.

Structural Weaknesses Worsen the Crisis

The Hormuz blockade exposes structural problems in India's energy sector. Since independence, virtually every Indian state has subsidized electricity prices. This policy has deeply embedded the expectation of free or cheap electricity in the country's democratic politics.

While heavy subsidization has significantly improved access to energy, it also substantially strains state finances and hinders investments in clean energy. In the current crisis, this weakness becomes evident: the states have little financial buffer to absorb rising import costs or quickly develop alternative energy sources.

Government policy measures and support are crucial drivers of the Indian electricity market, as they provide a clear roadmap, financial incentives, regulatory frameworks, and the infrastructure development necessary for sector growth. In the Hormuz crisis, however, these instruments show their limits when faced with an external shock of this magnitude.

Outlook: No Quick Relief in Sight

A rapid resolution of the Hormuz blockade is not on the horizon. In the short term, India must resort to more expensive shipping routes and alternative suppliers, significantly raising import costs. Medium-term, the crisis is likely to increase pressure on the Indian government to diversify energy infrastructure and reduce dependence on the Middle East.

The crisis could also reignite debate over electricity subsidies. Without reforms in this area, the financial scope of the states remains limited—especially when external shocks like the Hormuz blockade create additional burdens.