Oil, War, and the Hormuz Strait: South Asia and China’s Fragile Link to the Gulf

The Strait of Hormuz, a narrow maritime artery connecting the Persian Gulf to the Gulf of Oman, stands as the world’s most critical chokepoint for oil and gas. This vital passage facilitates the transit of approximately 20% to 35% of the world’s seaborne oil, accounting for roughly 20 million barrels per day. Its strategic significance is undeniable, as any disruption sends ripples across global energy markets and international trade. With recent Israeli attacks on Iran, the entire region teeters on the brink of a full-scale war. This, combined with Iran’s repeated threats to close the Strait of Hormuz in the event of conflict, has heightened anxiety among all nations connected to the trade traversing this waterway. In such a calamitous event, the South Asian region, despite its geographical distance from the direct conflict zone, would find itself deeply vulnerable.

*_{Satellite image of the Strait of Hormuz [Source of Image: MODIS]}*

Region’s Current Reliance on the Strait of Hormuz

The economic lifelines of many South and East Asian nations are inextricably linked to the free flow of trade through the Strait of Hormuz. Countries like Pakistan and India are heavily dependent on imported energy, with a significant majority of their crude oil and Liquefied Natural Gas (LNG) arriving via tankers traversing the Strait. Major oil suppliers such as Saudi Arabia, the United Arab Emirates (UAE), and Kuwait, all of whom export predominantly through this chokepoint, are critical to the energy security of these nations. For example, Pakistan’s energy import bill surged to $12.7 billion in the fiscal year 2024-25, representing nearly 26% of its total import bill, with crude oil imports alone totaling around $5.1 billion in 2024. Pakistan imported an average of 137,000 barrels of crude per day in 2024, predominantly from the Middle East. Similarly, India is the world’s third-largest oil importer, and a substantial portion of its crude oil and gas imports pass through the Strait of Hormuz, primarily from the Middle East. China, while having diversified its energy sources, still relies significantly on Middle Eastern oil that transits this strait. The maritime trade of these nations, particularly through major ports like Karachi, Gwadar, Mumbai, and Kandla, relies almost entirely on unrestricted access to and from the Persian Gulf, making the Strait of Hormuz an indispensable conduit for their economic activity.

*_{Tanker Traffic through the Strait of Hormuz [Source of Image: Marine Traffic]}*

Immediate Economic Fallout: The Cascade Effect

A closure of the Strait of Hormuz would unleash an immediate and devastating economic cascade across South Asia and beyond.

Oil and Energy Crisis

The most immediate and crippling effect would be on the region’s energy supply. Analysts predict that a prolonged closure could see global oil prices skyrocketing by 100% or more. For countries like Pakistan and India, already grappling with substantial petroleum import bills, this surge would be catastrophic. This would not only deplete foreign exchange reserves at an alarming rate but also lead to widespread fuel shortages and severe power crisis. The direct consequence would be rampant inflation, as higher fuel costs translate into increased transportation, manufacturing, and food prices across every sector of the economy, disproportionately affecting the common citizen. Pakistan has historically experienced high inflation rates, particularly during periods of rising global oil prices. India, too, would face immense inflationary pressures, impacting its vast population and economic stability.

Soaring Insurance Premiums and Freight Costs

Even before a full closure, the mere threat of conflict causes significant economic damage. As tensions rise, maritime insurers immediately increase “additional war risk premiums” (AWRP) for vessels operating in or transiting the Mideast Gulf and the Strait of Hormuz. Shipowners, facing heightened risks, would either avoid the region altogether or demand substantially higher freight rates to compensate for the danger, leading to exorbitant shipping costs for all goods. Furthermore, the possibility of “force majeure” clauses being invoked in shipping contracts could lead to widespread cancellation of charters, leaving South Asian nations without essential supplies and unable to export their products.

Disruption of Shipping Lanes

Beyond the critical flow of oil and gas, the Strait of Hormuz is a conduit for a vast array of global trade. Its closure would disrupt international supply chains for all commodities, creating ripple effects far beyond energy. Major ports in South Asia, including Karachi, Gawadar, Mundra and Mumbai, pivotal to their respective nations’ trade, would face severe impediments to maritime access. This disruption would halt the movement of crucial raw materials and finished goods, paralyzing industrial and commercial activities. For China, whose exports constitute 20% of its annual GDP and is heavily reliant on global trade, such a disruption would have profound implications for its manufacturing and export-oriented economy.

Impact on Imports and Exports

The immediate cessation or severe restriction of maritime traffic through the Strait would directly impact the ability of many regional nations to import essential goods. The most devastating impact would be the closure of primary import channels from key suppliers like Saudi Arabia, the UAE, and Kuwait, which are the main sources of crude oil and LNG for many of these countries. Without access to these routes, securing alternative sources or establishing new supply chains in a short timeframe would be an insurmountable challenge, leading to a complete breakdown of energy distribution.

The ripple effect would extend to other vital imports. Many south Asian nations rely on imports for essential food items, including edible oils, pulses, and wheat. Disruptions to these supply lines would lead to severe shortages and further price inflation, impacting food security. Similarly, industrial raw materials and machinery, crucial for manufacturing sectors, would face delays or become entirely unavailable, halting production and exacerbating economic downturn. Imports of automobiles and their parts, another significant category for some South Asian economies, would also be highly susceptible to disrupted shipping, affecting transportation and related industries.

The Gulf Cooperation Council (GCC) countries represent a vital export market for the regional nations. For Example,China’s exports to the UAE in 2023 were approximately $55.68 billion; India’s exports to the UAE in FY2023-24 were $35.63 billion; Pakistan’s total exports to the UAE in the first nine months of FY25 reached $1.610 billion.

A conflict in the Gulf would severely hamper the ability of these nations to access these markets. Major export sectors, such as textiles and garments from Pakistan and India, which constitute a significant portion of their total exports, would face severe disruptions. Products primarily destined for markets in the United States, Europe, and the Middle East would struggle to reach their destinations due to closed shipping lanes and prohibitive freight costs.

Potential Mitigating Factors and Strategic Considerations

While China and South Asian countries have explored avenues for diversification, immediate solutions to a Strait of Hormuz closure are limited.

Alternative Oil Routes

Some GCC countries possess limited pipeline capacities that can bypass the Strait of Hormuz, such as Saudi Arabia’s East-West Pipeline (Petroline) leading to the Red Sea, or the UAE’s Abu Dhabi to Fujairah pipeline. However, these pipelines have finite capacities and are primarily designed to serve the exporting countries’ strategic interests or supply specific markets, not to reroute the massive volume of oil needed by importing nations. They would be insufficient to mitigate the energy crisis if maritime routes through the Strait were entirely cut off.

Overland Routes and Regional Connectivity

Pakistan has indeed identified six new trade corridors, including road networks from Karachi to Moscow via China and Kazakhstan, and from Gwadar to Moscow via Afghanistan, Turkmenistan, and Iran. These initiatives reflect a strategic desire for diversification and enhanced connectivity, particularly with Central Asia and Europe, but they are still developing and are primarily land-based, designed for different types of cargo and not equipped to handle the immense volume of oil South Asian nations import via sea.

Similarly, India’s Chabahar Port in Iran and the International North-South Transport Corridor (INSTC) offer potential for regional connectivity and trade diversification, but their capacity to handle the vast energy import needs in a crisis scenario remains limited. Meanwhile, china has been aggressively building up its strategic petroleum reserves. These reserves act as a buffer, providing a cushion against short-term supply disruptions, including those caused by a closure or significant impediment to the Strait of Hormuz. The goal is to hold enough reserves to meet a certain number of days of import demand.

Conclusion

In conclusion, a full-blown war in the Gulf region, leading to Iran’s closure of the Strait of Hormuz and subsequent military intervention, would present an existential economic and social threat to the entire region. The profound reliance of countries like Pakistan, India, and even China on this chokepoint for a significant portion of their oil imports and overall trade means that any prolonged disruption can trigger an unprecedented energy crisis, hyperinflation, and a balance of payments crisis.

Given this dire potential, it is imperative for these nations to urgently develop robust contingency plans. This includes accelerating efforts to diversify energy sources, exploring and strengthening alternative trade routes (though limited for immediate oil imports), enhancing strategic petroleum reserves, and building greater economic resilience. Ultimately, the stability and prosperity of South Asia, and indeed much of Asia, are deeply intertwined with peace in the Middle East. The global and regional imperative for diplomatic solutions and de-escalation in the Gulf remains paramount to avert a crisis of unimaginable proportions