The blue waters of the Strait of Hormuz, connecting the Persian Gulf to the Arabian Sea, type an important artery of the worldwide economic system. By this slim gateway — stretching simply 33 km at some factors — move ships carrying almost a fifth of the oil that’s traded worldwide. After the U.S. and Israel launched a army marketing campaign towards Iran on February 28, Iran blocked ships passing via the Strait, main to cost will increase and turmoil in vitality markets.
Oil and pure gasoline account for a little bit over half of the worldwide vitality provide (with coal, renewables, and different sources accounting for the remainder, in accordance with IEA information for 2024). They gasoline autos from vehicles to aeroplanes, produce electrical energy and cooking gasoline, and supply important uncooked supplies for industries.
West Asian international locations across the Persian Gulf, notably Saudi Arabia, the UAE, and Iran, are among the many largest producers of crude oil and pure gasoline. On the identical time, among the largest vitality shoppers are in East and South Asia, notably China, India, and Japan. Nonetheless, these international locations have restricted home oil reserves to energy their rising economies (although China is a significant pure gasoline producer) (Chart 1). They depend upon crude and pure gasoline imports from West Asia, a lot of which passes via the Strait of Hormuz.
America and West Asia
The focus of vitality reserves, particularly oil, in just a few areas has been the first set off for among the long-standing and intense contests between international powers. Other than the Persian Gulf international locations, only some nations — the U.S., Russia, Venezuela, and Canada — have giant oil and pure gasoline reserves.
The U.S. has been a principal participant within the geopolitics of vitality, each a significant producer and shopper. Given the gas-guzzling sectors driving its economic system, the U.S. has a mean vitality provide per individual that’s 10 occasions that of India and a pair of.4 occasions that of China. The hunt for extra vitality has been one of many major motives of the U.S. worldwide insurance policies.
Management over oil in West Asia shifted from giant American and European companies to state-owned nationwide oil corporations because the Fifties. Oil costs elevated sharply within the Seventies, with Arab members exerting larger affect inside the Group of the Petroleum Exporting International locations. The U.S. response has been twofold: it elevated home manufacturing by drilling extra shale oil, particularly because the mid-2000s, making it the world’s largest oil producer, and it tried to mould the geopolitics of oil in its favour via strategic interventions, together with the Gulf Conflict (1990-91), the Iraq Conflict (2003-11), latest motion in Venezuela (2026), and the continued U.S.-Israel conflict with Iran.
Though present manufacturing ranges are modest, Venezuela and Iran collectively account for 39% of the world’s confirmed oil reserves. The promise of future oil is what makes these international locations strategically vital, particularly within the revenue projections of U.S. President Donald Trump. Nonetheless, the closure of the Strait of Hormuz has, at the very least within the quick time period, upset Mr. Trump’s calculations and made Russia an unintended beneficiary of the vitality turmoil. Following the Russia-Ukraine conflict in 2022, Russia turned a pariah within the West, particularly Europe, and commerce sanctions have lengthy stymied its oil commerce. However abruptly, as oil manufacturing capabilities in West Asia take a success, Russian oil has change into essential for stabilising vitality costs. Exterior West Asia, Russia is the one nation with a big tradable oil surplus (Desk 1).
Russian oil and India
The oil markets are deeply interlinked. Even a ripple in a nook of the market can collect itself right into a tumultuous wave. India is the world’s second-largest importer of crude oil and the third-largest shopper. Provide disruptions end in greater costs for important items and providers in India. On the identical time, India’s actions within the oil market considerably impression international oil costs.
European international locations, with restricted home oil and pure gasoline reserves, have historically relied on vitality imports, primarily from Russia, to resist the frosty winters. However with sanctions on Russian merchandise imposed since 2022, Europe has needed to search new vitality sources, primarily in West Asia.
On this context, India started buying Russian oil at discounted costs. The share of Russian imports in India’s oil purchases elevated dramatically — from 2.5% in 2021 to 39.0% in 2023. Discover that crude oil is processed in refineries to transform it into a variety of merchandise, together with petrol, diesel, LPG, and petrochemicals. Whereas depending on imported crude, China and India have constructed giant refining capability and export a portion of their refined oil merchandise. Some Indian refiners have made giant earnings by exporting merchandise processed from discounted crude.
Regardless of their protestations, Western leaders quietly welcomed the steadiness in oil costs that resulted when demand from India was partly diverted to sanctioned Russian oil since 2022 (Chart 2).
Immediately, with the Strait of Hormuz closed and oil costs crossing $110 a barrel, the U.S. is determined to see larger purchases of sanctioned Russian oil, which has lengthy been marooned at sea, to calm the markets.
Per week, certainly, could be a very long time in worldwide politics. As tensions extend in West Asia, the worldwide vitality order could possibly be reshaped.
(Jayan Jose Thomas is a Professor of Economics on the Indian Institute of Expertise, Delhi)
Revealed – March 19, 2026 11:05 pm IST