Overview
- The impact is expansive, affecting sectors beyond the energy sector.
- Immediate economic and commercial consequences include disruption of supply chains, and financial surge in procurement and ancillary costs.
- The maritime and shipping industry is the most impacted industry experiencing heightened regulatory compliance, increased costs, possible burdensome transit in light of the unsafe passage and uncertainty surrounding the West Asia conflict.
Introduction
The Strait of Hormuz (“Hormuz”) is one of the world’s most significant shipping routes and oil chokepoint. The rapid escalation of the conflict in West Asia, has resulted in the closure of Hormuz by Iran as a means to retaliate and apply pressure on global oil supplies. [1] The macro-economic impact of the closure of Hormuz on India is severe due to its heavy reliance on Hormuz for energy imports. India’s reliance on Hormuz can be gauged through several statistics, some stating that 50% of India’s crude oil imports are Gulf-linked; 90% of its Liquefied Petroleum Gas (“LPG”) imports come through Hormuz, etc. [2] India’s reliance on Hormuz expands beyond the energy sector and is experiencing a chilling effect in other sectors. The thematic impact can be broadly classified as disruption of supply chains and financial surge in procurement and ancillary costs. This article analyzes the actual and anticipated implications for India’s energy security, commercial landscape, and maritime industry.
Key Affected Sectors
Some key affected sectors [3] are as follows:
- The energy sector is the obvious candidate to face direct brunt of the closure. On account of these energy sources acting as a critical feedstock for several sectors, such as the fertilizer sector, their prolonged supply shortage can threaten downstream industrial output, massively impacting supply chains. [4] Unlike crude oil, India holds no strategic LPG reserves, [5] therefore, the immediate criticality for India lies in LPG and Liquefied Natural Gas (“LNG”). LPG supply shortage has also impacted the hospitality industry, forcing restaurants to reduce functionality. [6] However, alternatives are actively being explored such as crude oil supply from the Gulf being theoretically substituted with Russian or Atlantic Basin crude, although with longer transit times. [7] Moreover, US has temporarily loosened sanctions that earlier prevented other countries from buying Russian oil and petroleum, as a stability measure to ease the global energy crisis in light of the US-Israel war with Iran. [8]
- The Indian shipping sector faces operational paralysis, escalating costs and stringent regulatory mandates issued by Directorate General of Shipping (“DGS”) regarding safe passage and monitoring. [9] The unrest also poses three major concerns: (i) intensified port congestion; (ii) deterioration of scheduled performance; and (iii) carriers responses whereby they are rapidly restructuring via suspensions, port relays, or Mediterranean routing, forcing shippers to choose between congested regional hubs and predictable but longer, costlier Cape of Good Hope routes. [10]
- Marine insurers are likely to face a surge in claims related to war risks, cargo damage, and potential total losses of vessels. [11] The global re-insurance market, on which insurers rely, is also likely to face a surge in claims related to war risks, cargo damage, and losses of vessels. [12]
- The Ports and logistics sector is operating under some uncertainty. For instance, India’s strategic investment in Iran’s Chabahar port, intended as a gateway to Afghanistan and Central Asia, faces operational uncertainty due to the conflict and potential secondary sanctions. [13] Hormuz disruption has fueled congestion across key Indian ports as well. The Mundra Port in Gujarat faces arrival delays up to 49 days; Jawaharlal Nehru Port Trust (“JNPT”)/Mumbai Port is struggling with outbound logistics, facing about a 118% increase in departure delays etc. [14]
- Export oriented sectors such as textiles, engineering goods, agricultural products (like mango), gems & jewelry (specifically diamond cutting) are also exposed to supply chain shocks. [15]
- Other affected industries include chemicals, steels, ceramics, tiles, paints, textiles, etc. [16]
Immediate Economic and Commercial Implications
The closure of Hormuz has suspended global and domestic supply chains, creating a shortage of essential energy supplies in India, with palpable effects nationwide. [17] This standstill has triggered a spike in oil prices [18] and a cascade of actual and anticipatory commercial impacts. Major shipping lines, including Maersk, have suspended cargo bookings in the Persian Gulf, [19] while vessels already in transit face massive delays with some considering re-routing through the Cape of Good Hope. [20] Unanticipated cargo loads are currently saturating alternative discharge hubs in the Indian Ocean and Red Sea, simultaneously stranding empty containers in blockaded Gulf ports and drastically constricting global container turnaround times. [21] Furthermore, there is an observed artificial inflation of freight tariffs for high-value, time-sensitive Indian exports, specifically in the technology and pharmaceutical sectors. [22]
The maritime and shipping industry faces operational and regulatory strain. As of March 2026, 35 Indian-flagged vessels [23] and 778 seafarers remain in the Persian Gulf region; [24] while no Indian-flagged vessels have been directly involved in incidents, the DGS has reported four incidents involving Indian seafarers on foreign-flagged vessels, resulting in three casualties. [25] Consequently, the DGS has mandated heightened regulatory measures for vessels in the region. These operations have become extremely costly and risky following the Joint War Committee’s high-risk classification, which led insurers to terminate standard war insurance for the Persian Gulf. [26] Domestically, entities like GLC Re are withdrawing marine hull war cover, [27] which will consequently force Indian shippers to secure ad hoc reinstatement premiums at exponential markups, which are costs that will likely be passed down to charterers and cargo interests. [28]
Beyond these immediate disruptions, the industry anticipates a surge in complex legal and contractual disputes. These include (i) increased instances of ship arrests; [29] (ii) claims on war risk insurance and insurance coverage disputes along with issues related to spike in freight and insurance premiums; [30] (iii) diversion of shipping routes resulting in demurrage disputes due to rerouting through Cape of Good Hope; and (iv) contractual disruptions with recurring issues related to invocation of force majeure clauses, frustration of contracts, war risk clauses and deviation clauses and sanctions and compliance risks.
Comments and Foresight
The closure of the Strait of Hormuz has highlighted vulnerabilities in India's energy security. For the shipping industry, operations have shifted from standard logistics to crisis management, defined by extended voyages and regulatory rationing that will likely persist until the US-Israel-Iran conflict resolves. This expansive impact affects a growing list of stakeholders, including shipowners, energy cargo interests, port operators, and marine insurers, which is anticipated to lead to a surge in admiralty litigation, breach of contract disputes, international arbitration, and insurance-related disputes.
Zooming out of the potential disputes into the closure of Hormuz inevitably triggering a cascade of contractual disputes, with Force Majeure (“FM”) clauses becoming the primary battleground for Indian maritime and energy stakeholders. Under Indian law, FM is a creature of contract embodied by Section 32 of the Indian Contract Act, 1872 (“ICA”), meaning its applicability hinges entirely on the specific wording of each agreement. This means that the availability of FM depends on whether there is an explicit provision for FM in the contract and its exact wordings. Parties invoking FM must demonstrate that Hormuz’s closure did not merely render performance more expensive or inconvenient but actually prevented performance by destroying the fundamental basis of the contract. [31] Depending on the language of FM clause, a significant volume of FM disputes are expected to arise from delayed arrival of cargo in light of the very pertinent issues such as rerouting through the Cape of Good Hope, supply shortages, etc arising as a direct result of closure of Hormuz.
References:
[1] Day 13 of Middle East conflict - global economy disruptions, Iranian attacks spread to sea | CNN
[5] Oil, cooking gas and remittances: How Iran conflict hits India at home
[7] Oil, cooking gas and remittances: How Iran conflict hits India at home
[8] US easing of Russia oil sanctions faces pushback from other leaders
[9] DGS Circular No. 08 of 2026 dated 28 Feb 2026 ; DGS Circular No. 09 of 2026 dated 28 Feb 2026; DGS Order No. 01 of 2026 dated 2 March 2026 ; DGS Press Release dated 2 March 2026; DGS Circular No. 10 of 2026 dated 6 March 2026
[10] Strait of Hormuz Closure Disrupts Global Container Shipping - Global Trade Magazine
[11] GIC Re withdraws marine hull war cover in high-risk regions- Economic Times; West Asia war impact: Insurers jack up hull, cargo premiums, withdraw war risk cover | Explained News - The Indian Express
[12] Reinsurers move to rework marine, aviation policies as West Asia tensions rise - The Economic Times
[14] Strait of Hormuz disruption fuels congestion at key Indian ports
[15] Iran war: From chemicals and textiles to mango fertiliser and steel- Firstpost
[16] Iran war: From chemicals and textiles to mango fertiliser and steel- Firstpost
[18] Asia governments to cap fuel prices as oil costs jump
[19] Maersk Cargo Bookings: Shipments halted to Gulf nations amid Hormuz
[20] Middle East Crisis Situation Updates - DHL Global Forwarding - United States of America
[21] West Asia crisis: Ind-Ra sees limited impact on Indian economy amid oil war; Middle East Supply Chain Disruption [6 March Update] | International Cargo Express
[22] Pharma, Electronics Exports Reeling as Air Freight Rates Quadruple - India Seatrade News; War can impact up to ₹5,000 cr. of pharma exports, disrupt supply chain - The Hindu
[23] Strait of Hormuz: 35 Indian ships, 1,000 sailors stranded in region crisis.
[25] DGS Press Release dated 2 March 2026
[26] LMA - Joint War Committee
[27] GIC Re to withdraw marine hull war risk cover in high-risk regions from March 3 - CNBC TV18
[29] The Legality of Iran’s Closure of the Strait of Hormuz – EJIL: Talk!
[30] Reinsurers scrap war-risk cover after US torpedoes Iranian ship - Asia Insurance Post
[31] Energy Watchdog v. Central Electricity Regulatory Commission & Ors., (2017) 14 SCC 80
Authors:
Mustafa Motiwala, Senior Partner
Nihal Shaikh, Associate Partner
Sanskriti Sharma, Associate
Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.