Could the reopening of Hormuz bring down fuel costs? Impact on India's economy explained

New Delhi: India could see significant economic and energy-sector benefits if shipping through the Strait of Hormuz returns to normal following an interim agreement between the United States and Iran aimed at ending months of conflict in the Gulf region.

The Strait of Hormuz, located between Iran and Oman, is one of the world's most important energy corridors, carrying around one-fifth of global oil consumption. It is the primary export route for major Gulf producers such as Saudi Arabia, Iraq, Kuwait, the United Arab Emirates and Qatar, all of which are key suppliers to India.

The conflict, which disrupted oil and natural gas shipments through the strait, triggered a sharp rise in global energy prices. Brent crude surged from around USD 70–72 per barrel in February to as high as USD 119 per barrel during the peak of the disruption. The increase pushed up shipping insurance premiums and freight charges, adding further pressure on energy-importing countries.

Oil markets reacted positively after US President Donald Trump announced an interim agreement with Iran that would allow ships to pass through the Strait of Hormuz. Following the announcement, Brent crude prices fell about 4 per cent to around USD 84 per barrel, signalling renewed confidence in energy market stability.

For India, which imports more than 88 per cent of its crude oil requirements, the reopening of the strait could help reduce the country's import bill, strengthen the rupee and ease inflation. Before the conflict, roughly half of India's crude oil imports and a substantial portion of its liquefied petroleum gas and natural gas imports passed through Hormuz.

The disruption forced India to take several emergency measures. Natural gas allocations were rationalised, LPG supplies to commercial establishments were temporarily restricted and household refill waiting times were extended. Indian refiners also increased purchases from alternative suppliers in Russia, Africa, the United States and Latin America to reduce dependence on Gulf shipments.

The government reviewed fuel inventories and introduced temporary provisions allowing restrictions on bulk purchases of petrol and diesel to prevent shortages. Oil companies also prepared contingency plans involving alternative shipping routes and cargo scheduling.

Industry analysts believe that normal shipping operations through Hormuz would reduce supply risks, lower freight and insurance costs and help refiners maintain more predictable procurement schedules. Lower energy costs could also benefit sectors such as aviation, petrochemicals, fertilisers, logistics and manufacturing.

The broader geopolitical picture remains uncertain despite the interim agreement. According to details released by US and Iranian officials, the proposed deal includes a 60-day framework to negotiate the future of Iran's nuclear programme, with discussions expected to cover the handling of Iran's stockpile of highly enriched uranium.

The agreement is also expected to include provisions related to reopening the Strait of Hormuz and the phased easing of sanctions on Iran. Regional officials have indicated that frozen Iranian assets could also be released as part of the arrangement.

However, several key issues remain unresolved. Questions persist over the final status of Iran's nuclear programme and whether wider regional conflicts, including tensions involving Lebanon and the Iranian-backed Hezbollah movement, will be covered under any permanent settlement.

For India, the immediate concern remains energy security. If the ceasefire holds and shipping through Hormuz returns to normal, lower oil and gas prices could ease pressure on consumers, reduce fuel-related inflation and improve the overall economic outlook in the coming months.