Oil Prices Drop After US–Iran Ceasefire, But Hormuz Risks Keep Energy Costs High for India and Asia

Global crude oil prices witnessed a sharp correction on Wednesday following the announcement of a Pakistan-brokered two-week ceasefire between the United States and Iran in the ongoing West Asia conflict.

Benchmark Brent crude declined by nearly 16 per cent to around $93 per barrel as of 12 noon (India time), signalling temporary relief in global energy markets after weeks of severe volatility triggered by supply disruptions in the Strait of Hormuz.

The geopolitical tensions in West Asia had earlier caused crude oil prices to surge by more than 50 per cent during March, as maritime traffic through the Strait of Hormuz — a critical global energy chokepoint — was effectively halted due to military hostilities and attacks on oil and gas infrastructure in the Gulf region.

Nearly one-fifth of global crude oil and liquefied natural gas (LNG) shipments pass through the Strait, making any disruption a major risk to global energy stability.

The ceasefire has provided short-term optimism, but market experts caution that the situation remains fragile and uncertain.

Oil prices continue to remain over 3 per cent higher than pre-war levels, reflecting continued concerns about supply disruptions and geopolitical risks in the region.

The global energy market appears cautious about fully pricing in a long-term resolution, given the temporary nature of the ceasefire and ongoing strategic tensions.

Asia, particularly energy-import-dependent economies like India, has been among the worst affected by the crisis. India imports more than 88 per cent of its crude oil requirements, with over 40 per cent of these supplies typically transiting through the Strait of Hormuz.

Similarly, the country relies on imports for nearly half of its natural gas consumption, of which approximately 55 to 6per centnt arrives via the same maritime route.

India’s dependence on imported liquefied petroleum gas (LPG) is also substantial, with nearly 60 per cent of demand met through imports and around 90 per cent of those shipments routed through the Strait.

Although the partial reopening of the Strait under the temporary ceasefire arrangement is expected to improve supply conditions in the short term, energy markets remain wary of risks associated with shipping safety and infrastructure damage.

Iran’s Foreign Minister Seyed Abbas Araghchi indicated that safe passage through the Strait of Hormuz would be allowed for the next two weeks, but only under coordination with Iran’s armed forces and subject to technical constraints.

Shipping companies are therefore expected to remain cautious before resuming full-scale operations in the region.

Energy analysts believe that even if the ceasefire holds, restoration of normal supply levels from West Asia may take several months.

Key energy infrastructure such as export terminals, oil fields, refineries and LNG processing facilities have suffered damage during the conflict, and resumption of full production capacity could require considerable time and investment.

Estimates suggest that approximately 180 million barrels of crude oil and refined fuels, along with more than 1 million tonnes of LNG, remain stranded in the Persian Gulf due to the disruption in tanker movements.

While reopening of the Strait may allow evacuation of these cargoes in the coming weeks, experts caution that shipping companies may remain reluctant to re-enter the region immediately due to concerns over safety and insurance risks.

The blockade of the Strait forced Gulf producers to shut down nearly 7.5 million barrels per day (bpd) of oil production in March, accounting for roughly 7.per centnt of global oil supply, according to estimates by the .US

Energy Information Administration (EIA). In its latest assessment, the EIA indicated that production shut-ins could rise to 9.1 million bpd in April even under the assumption that tensions ease gradually.

The agency expects supply disruptions to continue in the near term, with production levels likely returning close to pre-conflict levels only by late 2026.

International brokerage firm CLSA has also indicated that the global oil and LNG market may remain structurally tighter in the medium term, even if hostilities reduce.

Analysts believe that restarting production facilities in the Gulf may take several months, while countries may increase strategic reserves to safeguard against future supply shocks.

This combination of constrained supply and precautionary demand could keep oil and gas prices elevated for an extended period.

For India, the crisis has resulted in a dual challenge of supply disruption and rising import costs. The country imports between 1.8 and 2 billion barrels of crude oil annually, meaning that every $1 increase in global oil prices increases India’s import bill by up to $2 billion on an annual basis.

According to a report by Nomura, India is among the three most vulnerable Asian economies to oil price shocks, along with Thailand and South Korea. A 10 per cent increase in oil prices typically widens India’s current account deficit by around 0.4 per cent of GDP.

In response to rising global fuel prices, the Indian government has reduced excise duty on petrol and diesel by Rs 10 per litre, while oil marketing companies have refrained from increasing retail fuel prices despite facing significant under-recoveries.

Public sector oil companies are also absorbing losses on domestic LPG sales and aviation turbine fuel, where price increases have only been partially passed on to consumers.

To offset supply disruptions from West Asia, India has increased crude oil imports from alternative sources, particularly Russia.

Preliminary trade data indicate that crude imports from Iraq and the United Arab Emirates declined by nearly 70 per cent in March on a month-on-month basis, while imports from Saudi Arabia and Kuwait fell by around 45 per cent.

Meanwhile, imports from Russia surged by more than 80 per cent compared to February levels, reaching approximately 2 million barrels per day and raising Russia’s share in India’s crude imports to over 45 per cent.

India had earlier reduced purchases of Russian oil amid trade negotiations with the United States, but the Hormuz crisis prompted Washington to temporarily allow greater flexibility in sourcing oil from Russia.

The US administration issued waivers permitting Indian refiners to procure Russian crude already loaded on tankers, and later extended similar waivers for other countries as well.

A comparable waiver was also granted for Iranian oil cargoes already in transit, enabling India to import limited volumes of Iranian crude after a gap of seven years.

Apart from crude oil, India has also secured LNG and LPG cargoes from non-West Asian suppliers to ensure supply continuity.

The government has remained in close diplomatic contact with Iran and other regional stakeholders to facilitate the safe movement of Indian-flagged vessels carrying energy supplies.

So far, eight LPG tankers flying the Indian flag have successfully navigated the Strait of Hormuz under coordinated arrangements with Iranian authorities.

Experts believe that while the temporary ceasefire has helped stabilise global oil prices, the structural impact of the conflict on supply chains and geopolitical risk perception is likely to keep energy prices elevated in the near to medium term.

For India and other energy-importing economies, ensuring supply diversification, strengthening strategic reserves and managing price volatility will remain key priorities until normalcy fully returns to global energy markets.