Hormuz Disruption Raises Oil Market Fears While India Seeks Supply Alternatives

Oil industry leaders have warned Donald Trump and his administration that the ongoing disruption of the Strait of Hormuz could deepen the global fuel crisis, according to a report by The Wall Street Journal.

The report stated that American oil executives cautioned officials that the energy crisis triggered by the Iran war could intensify as disruptions in the vital waterway continue to affect global energy flows.

The WSJ report noted that Exxon CEO Darren Woods told officials that oil prices could rise beyond current elevated levels if speculators unexpectedly bid up prices.

He also warned that markets could face a supply crunch of refined products. Chevron CEO Mike Wirth and ConocoPhillips CEO Ryan Lance also conveyed concerns about the scale of the disruption.

Industry executives also noted that domestic production increases in the United States are likely to remain modest and will not be able to replace the roughly 9 million to 10 million barrels of oil per day that analysts say are currently trapped behind the Strait of Hormuz.

How crucial is the Strait of Hormuz to global oil supply and trade?

However, US oil prices have already climbed from $87 a barrel that day to $99 a barrel by Friday.

Earlier, Trump announced that he has requested approximately seven nations to deploy warships to assist in maintaining transit routes through the Strait of Hormuz as the conflict with Iran continues to affect the critical maritime corridor.

Despite escalating global oil prices, no country has yet provided a definitive commitment to the mission.

More than 20 million barrels of crude oil pass daily through the narrow channel separating the Iranian coast from Oman.

That volume represents roughly a fifth of global oil consumption and nearly a quarter of all seaborne oil trade.

How vulnerable is India to oil supply disruptions in the Strait of Hormuz?

A significant share of the world's liquefied natural gas also moves through the same passage. When that flow falters even briefly, the consequences cascade across financial markets, supply chains and household budgets around the world.

The ongoing West Asia crisis and disruptions around the Strait of Hormuz could also create short term stress for India's crude supply chain, though diversified sourcing and inventories should help cushion the immediate impact, according to a report by Morgan Stanley.

The brokerage noted that India remains exposed to Middle East oil flows because a significant share of its imports transit the region.

"40-50 per cent of India and China's oil needs pass through the Strait of Hormuz," the report said, highlighting the vulnerability of Asian energy supply chains to disruptions in the Gulf.

India also sources a large portion of its crude from the Middle East. The report estimates that "46 per cent of India's crude basket is imported from the region," underscoring the country's reliance on Gulf producers for its refining requirements.

Could the Strait of Hormuz disruption benefit India’s refining sector?

However, Morgan Stanley said inventories and alternative sourcing routes should prevent an immediate demand shock.

"Crude and petroleum product reserves across Asia Pacific range between 30 and 200 days," while countries including India are already tapping alternative suppliers.

To mitigate supply risks, India has been increasing purchases of discounted Russian oil and exploring other sources.

"India is also ramping up purchases of Russian crude (particularly Urals) after the US waived sanctions on Russian oil imports for 30 days," the report noted, adding that New Delhi is also in talks with Iran to secure safe passage for tankers carrying LPG and crude. "It is also in talks with Iran to secure safe passage for more than 20 tankers."

Despite the supply concerns, Morgan Stanley believes India's refining sector could benefit if the disruption persists.

Tight supply and export curbs across Asia have pushed refining margins higher.

The report said gasoline, diesel, jet fuel, naphtha and fuel oil prices have risen 18-30 per cent in the past week, reflecting the tightening market.

Refiners with diversified crude sourcing, particularly large integrated players and state run oil marketing companies, are likely to see improved profitability from higher product cracks.

Morgan Stanley estimates that "a $1-1.5/bbl rise in gross margins for refiners would imply 15-30 per cent earnings upside in 2026."

Overall, the report said the duration of the West Asia disruption will be critical for the outlook.

While inventories and alternative crude sources provide short term buffers, prolonged supply interruptions could intensify stress across Asia's energy and industrial supply chains.

(With inputs from ANI)