Iran, Oman working on plan to reopen Strait of Hormuz
Iran and Oman are reported to be working on a plan to restore shipping through the Strait of Hormuz, months after transit through the waterway collapsed following regional hostilities.
The proposed framework reportedly involves a temporary arrangement with separate shipping lanes for inbound and outbound vessels, coordinated between Iranian and Omani territorial waters, without transit fees during an initial period.
The United States has stated it would not accept any arrangement giving Iran effective control over the strait or requiring vessels to obtain Iranian approval before transit, seeking instead unrestricted freedom of navigation.
Merchant shipping through the strait had fallen to a small fraction of pre-crisis daily transits, with the disruption affecting roughly one-fifth of the world's oil supply that normally moves through the waterway.
The Strait of Hormuz as a Global Oil Chokepoint
The Strait of Hormuz is the single most important maritime chokepoint for global oil trade, as it is the only sea route out of the Persian Gulf for the region's major oil-exporting states.
Key Details
- Approximately one-fifth of global oil consumption (roughly 20-21 million barrels per day pre-crisis) transits the strait, alongside a significant share of global liquefied natural gas (LNG) trade, chiefly from Qatar.
- The strait is the primary export route for Saudi Arabia, Iraq, UAE, Kuwait, Qatar, and Iran — several of the world's largest crude producers.
- Roughly 84% of the oil moving through the strait is destined for Asian economies, making disruptions disproportionately costly for Asian importers, including India, China, Japan, and South Korea.
- Global benchmark crude prices (Brent) are highly sensitive to Hormuz disruption risk because the strait has no practical alternative maritime route; overland pipeline bypass capacity (e.g., Saudi East-West Pipeline, UAE's Fujairah pipeline) covers only a fraction of the volume that would otherwise transit by sea.
Any durable reopening arrangement directly determines whether global oil supply returns to pre-crisis flow levels, which is why the shipping-lane and control-of-passage terms being negotiated between Iran, Oman, and (indirectly) the US carry global economic weight far beyond the Gulf region.
India's Crude Oil Import Dependence and the Hormuz Exposure
India imports the overwhelming majority of its crude oil requirement, and a significant share of that crude, along with LNG, transits the Strait of Hormuz, making India acutely exposed to any prolonged closure or restriction of the waterway.
Key Details
- India's crude oil import dependence stood at a record 88.7% in FY2025-26 (provisional), up from about 85.5% in FY2021-22, as domestic crude production has continued to decline.
- India's top crude suppliers as of early 2026 include Iraq, Russia, Saudi Arabia, and the UAE — with Gulf suppliers (Iraq, Saudi Arabia, UAE, Kuwait) collectively representing a large share of imports that would transit Hormuz.
- India has diversified crude sourcing in recent years, notably increasing imports of discounted Russian crude (delivered via non-Hormuz routes), which has partially reduced — but not eliminated — direct Hormuz-route exposure.
- India is also a large importer of Qatari LNG, virtually all of which transits the strait, making gas supply an additional channel of exposure beyond crude oil.
A durable reopening of the strait on terms acceptable to shippers directly affects the cost and reliability of a large share of India's energy imports, reinforcing why India tracks Hormuz negotiations closely even as a non-party to the underlying dispute.
India's Strategic Petroleum Reserves (SPR) as a Buffer
India maintains government-owned Strategic Petroleum Reserves to cushion short-term supply disruptions of the kind a Hormuz closure could cause, managed by a dedicated public sector entity distinct from commercial refinery stocks.
Key Details
- India's Strategic Petroleum Reserves are managed by Indian Strategic Petroleum Reserves Limited (ISPRL), a special purpose vehicle under the Ministry of Petroleum and Natural Gas, established following the 1990-91 Gulf War oil-shock experience.
- Reserves are stored in underground rock caverns at three locations: Visakhapatnam and additional sites in Andhra Pradesh, and Padur and Mangalore in Karnataka.
- Total SPR capacity is approximately 5.33 million tonnes, sufficient to cover roughly 9-10 days of India's crude oil requirement at full capacity; including commercial/refinery stocks, total national buffer coverage is estimated at 70-74 days.
- Expansion plans target raising SPR capacity toward 6.5 million tonnes, including two new caverns, to improve crisis-response capacity.
The SPR framework is the direct policy tool India would draw upon if the Hormuz negotiations fail and disruption to Gulf crude flows persists, illustrating the practical stakes of the diplomatic outcome for India's energy security architecture.
Global Oil Price Transmission and India's Domestic Fuel Pricing
Since India deregulated petrol and diesel pricing, domestic retail fuel prices are, in principle, linked to international crude benchmarks (chiefly Brent), meaning a sustained Hormuz-driven price spike can transmit into India's domestic inflation.
Key Details
- India moved to market-linked pricing of petrol (2010) and diesel (2014), ending the earlier administered pricing mechanism; state-owned oil marketing companies now set retail prices based on benchmark crude costs, though prices are sometimes held steady for policy reasons.
- Elevated crude prices affect India's Current Account Deficit (CAD), given the country's high import dependence, and can pressure the rupee given oil's large share of the import bill.
- Fuel price pass-through interacts with the Consumer Price Index (CPI) both directly (transport fuel weight) and indirectly (through transport-linked costs of other goods), a channel the Reserve Bank of India's Monetary Policy Committee tracks under its flexible inflation-targeting mandate.
- Global chokepoint risk (Hormuz, and previously Bab-el-Mandeb/Red Sea disruptions) is now a recurring theme in Reserve Bank and Ministry of Finance risk assessments of external sector vulnerability.
The outcome of the Iran-Oman reopening talks feeds directly into this transmission chain — a durable, low-friction reopening would ease upward pressure on crude benchmarks and, by extension, on India's import bill, currency, and inflation trajectory.
- Strait of Hormuz carries roughly one-fifth of global oil consumption (~20-21 million barrels/day pre-crisis) and a major share of global LNG trade
- ~84% of crude transiting the strait is bound for Asian markets
- India's crude oil import dependence: 88.7% in FY2025-26 (provisional), up from 85.5% in FY2021-22
- India's SPR capacity: ~5.33 million tonnes across Visakhapatnam, Padur, and Mangalore; covers ~9-10 days at full capacity; ~70-74 days including commercial stocks
- ISPRL was established as a public sector SPV under the Ministry of Petroleum and Natural Gas following the 1990-91 Gulf War oil shock
- India deregulated petrol pricing in 2010 and diesel pricing in 2014, linking domestic retail prices to international crude benchmarks