New Delhi: China faces damaging exposure to the US’s blockade of Iranian ports and any further disruption to shipping through the Strait of Hormuz, but Indian refiners could still feel the pain due to higher prices and increased competition for crude, industry analysts have warned.
Beijing’s vulnerability is direct. China accounts for nearly 90 percent of Iranian crude purchases, and any constraint on flows from Tehran would force refiners into a scramble for alternative supplies, reshuffling trade flows across global oil markets.
ThePrint reported last week that Iran was exporting around 1.9 millions barrels per day on an average in March, most of which was to China.
For India, the first-order risk is limited. But the second-order consequences—likely to be driven by China’s displacement from Iranian barrels—could push up benchmark prices and squeeze New Delhi’s import bill even as volumes hold steady.
“It is still early to draw definitive conclusions on the extent of impact from a potential US-led blockade or disruption in the Strait of Hormuz,” said Sumit Ritolia, Manager for modelling refinery and oil markets at commodity intelligence firm Kpler.
“Much will depend on how enforcement and vessel movements evolve in the coming days,” he added.
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What the blockade actually covers
On Monday, the US announced that its blockade on shipping vessels transiting to or from Iranian ports via the Strait of Hormuz was in effect. The blockade was apparently to ramp up economic pressure on Tehran, which relies heavily on its oil exports for earnings, into reaching a peace deal with the US. Historical talks between the two sides in Pakistan fell through over the past weekend.
The US military’s Central Command (CENTCOM) subsequently clarified that it would “not impede” ships sailing through the strait to and from non-Iranian ports—narrowing the measure to vessels specifically linked to Iranian trade.
India’s direct exposure to this restriction is minimal. “India’s recent engagement with Iranian crude is limited to cargoes already loaded before the US waiver, rather than any fresh loading/buying. Fresh Iranian loadings are mostly destined for China,” Ritolia said.
On 28 February, the US and Israel attacked Iran, which retaliated by effectively blocking the Strait of Hormuz, through which one-fifth of the world’s oil and gas cargoes transit. Washington in March eased sanctions on certain Iranian crude cargoes stranded at sea to stabilise global oil markets amid supply crunch.
But this waiver is valid only until 19 April, Ritolia noted.
“India is not receiving newly traded or freshly loaded Iranian barrels… any tightening of US restrictions would not materially impact India’s direct imports from Iran in the immediate term but will surely pressure China’s crude import,” he said.
The China effect
The real concern, Ritolia emphasised, lies in the after-effects of the US’s blockade.
If Chinese refiners pivot away from Iranian barrels, they will likely increase purchases from West Asia, Russia, West Africa and the Americas. These are the same markets Indian refiners depend on. The resulting competition—what Ritolia calls the “China displacement effect”—would tighten availability and push prices higher.
“This demand reshuffling is likely to push benchmark prices (Brent/Dubai) higher, particularly in the spot market where Indian refiners are active,” he said.
On Tuesday, Brent crude fell just below $100 per barrel, but continues to remain around 30 percent higher than pre-war prices.
The grade-specific consequences compound the problem. The loss of Iranian medium-sour crude could tighten the supply of similar grades from Saudi Arabia, Iraq and the UAE.
“This could lead to stronger premiums and impact India’s refining economics,” Ritolia said.
While Indian refiners have the capability to process heavier and sour crude grades such as those from Venezuela, medium-heavy sour barrels from Russia and Gulf producers are better suited for large-scale refining operations in the country.
Even a partial escalation of hostilities in the Gulf—short of a full blockade—carries cost implications, Ritolia warned. “Any escalation, even without a formal blockade, could increase tanker rates and insurance costs, adding to India’s landed crude costs,” he said. Landed cost includes the total price of procuring oil on its arrival at a port of discharge. It includes freight costs, insurance charges and handling fees.
“Net-net, the impact on India’s crude strategy is unlikely to come from losing Iranian barrels, but rather from paying more for alternative supplies amid tighter global market conditions,” Ritolia said.
LPG: The more immediate concern
Crude dominates the headlines, but Ritolia identifies LPG supply as India’s key vulnerability.
“From India’s perspective, the more immediate and critical vulnerability is LPG rather than crude,” he said.
LPG supplies from West Asia had already tightened before the US’s latest move, prompting India over the past few weeks to diversify sourcing and explore opportunistic purchases, including from Iran.
In peacetime, India was importing about 60 percent of its LPG requirements. Most of it, 90 percent, was from West Asia.
“India has been closely coordinating with regional stakeholders to manage and maintain LPG vessel flows, ensuring shipment continuity even amid disruptions,” Ritolia said.
Multiple LPG vessels have continued to transit the Strait in recent days, suggesting flows are being actively managed. But the situation remains fragile.
“Any further disruption, particularly impacting supplies from Iran or other Gulf countries, would likely tighten India’s LPG balance further,” he warned. Since the US’s blockade, Iran has threatened to retaliate against its Gulf neighbours’ ports.
With variables still in play, the Kpler analyst urged caution against predictions. “This remains a very early-stage development. It will be important to closely monitor how enforcement, trade flows, and buyer behaviour evolve over the coming days and weeks,” Ritolia said.
(Edited by Prerna Madan)