By Nantoo Banerjee
With Yemeni Houthis declaring a maritime embargo and naval blockade against Saudi Arabia, India’s bid to mitigate energy and supply chain shocks, following structural disruptions in the Strait of Hormuz, by rapidly diversifying trade corridors and maritime protocols faces a big challenge. At a stake is the country’s US$158-billion-plus bilateral trade passing through the region. The naval blockade severely threatens India’s foreign trade by constricting energy supplies, inflating logistics costs, and choking key export routes. The crisis specifically inflames the Bab el-Mandeb Strait, a vital choke point through which Saudi crude oil reaches south and east Asia. The region represents a vital trade corridor for India.
The naval blockade against Saudi Arabia by Houthi militants will substantially raise the cost of India’s crude oil imports. The Strait of Hormuz continues to be in a state of near-total operational paralysis following a severe escalation in the US-Iran conflict. Daily transits have plummeted to single digits. The Persian Gulf crisis has severely disrupted global energy flows, pushing oil prices higher. The Iranian Islamic Revolutionary Guard Corps (IRGC) are attacking commercial vessels after they declared the strait closed. The US responded with targeted strikes on Iranian military assets with President Trump frequently threatening severe retaliation. Now, the alternative Red Sea ports face the Houthi blockade.
The India-UAE trade, which surpassed $100 billion in 2025-26, and overall Gulf transit face a massive disruption due to the ongoing Strait of Hormuz crisis, with activity at major hubs like Jebel Ali plunging by up to 95 percent and India-West Asia merchandise trade slumping over 50 percent. Operations are severely constrained, forcing widespread trade rerouting despite critical limitations. Activity at key transshipment terminals like the UAE’s Jebel Ali Port dropped drastically as commercial vessels avoided the closed waterway. Containers remain stuck at alternative regional transit points like Khor Fakkan in the UAE and Sohar in Oman. Marine insurance premiums, war-risk rates, and freight fees have escalated sharply. Now, the Houthi blockade of Saudi Arabia’s Red Sea ports is making the situation worse.
The Houthi blockade of Saudi Arabian Red Sea ports threatens up to four million barrels per day (bpd) of redirected Saudi crude exports, adding fresh supply risks as the Strait of Hormuz remains effectively disrupted. The global as well as Indian oil markets face a broader supply squeeze, with attacks also halting Kazakhstan’s CPC oil exports. Global oil inventories have already depleted after months of strategic reserve releases. Analysts have warned of higher oil and fuel prices as disruptions spread across multiple chokepoints, raising concerns over inflation, economic slowdown, and even recession if outages persist. Several tankers have reportedly changed course to avoid passing through the Bab el-Mandeb Strait to avoid possible Houthi attacks.
The situation will inevitably lead to higher oil prices. Current oil prices are already quite high, when viewed in a broader context. Crude oil prices had gone up by as much as 65 percent in the year to date. Over the 12 months to July, both Brent crude and West Texas Intermediate are up by over 50 percent. Prices continue to be pretty high compared to a year ago even if they are not firmly in three-digit land. In fact, the Brent crude crossed $100 per barrel for the first time since May, driven by Houthi tanker attacks and supply choke fears. If the Houthi blockade succeeds in redirecting traffic away from Bab el-Mandeb, the oil price could still move higher—and stay there as the physical market tightens further. According to reports, around seven million barrels daily pass through the Bab el-Mandeb Strait. The pre-war daily oil traffic used to be around 20 million barrels for the Strait of Hormuz. With Hormuz shut down again, Bab el-Mandeb has become a much more significant gateway for West Asian oil. In case the Red Sea choke point remains shut down for a longer period, it will severely impact on the supply and prices of oil.
The new development is bound to impact India’s bid to aggressively diversify its oil supply sources and reroute shipments due to soaring freight costs and blocked chokepoints straining its multi-source import strategy. India has expanded oil procurement sources from 27 to over 40 countries, leaning heavily on record Russian volumes, Latin American, and African suppliers. Now, Houthi threats near Bab el-Mandeb and turning back of tankers are disrupting alternative Saudi flows and Russian crude transit. Reliance on UAE pipelines to Fujairah or Saudi lines to Yanbu increases transit expenses and faces security warnings. Surging insurance premiums, longer voyage times, and elevated global crude benchmarks are inflating India’s overall energy tab.
This explains India’s renewed push for ethanol blended oil to reduce the cost of petrol and combat its supply shortage. The country’s mandatory 20 percent ethanol blending (E20) programme has successfully substituted over 316 lakh metric tonnes of crude oil and saved more than Rs.1.97-lakh crore in foreign exchange. The domestic ethanol production capacity has been increased to nearly 2,000 crore litres. India produces over 40 million litres of ethanol per day. However, not all ethanol-blended petrol users are happy. Ethanol blended petrol reduces mileage by about five percent (and up to 7-8 percent in some real-world driving tests), but official and research data show it does not cause widespread or direct engine damage in modern cars although older non-compliant vehicles may face long-term component wear because high ethanol concentrations are corrosive and attract moisture.
Challenges invariably offer solutions by shifting one’s perspective, driving creative thinking, and forcing necessary changes. Every difficult situation carries the seed of a solution by highlighting what needs to change. Till now, India seems to be successfully navigating the severe geopolitical energy shocks through supply diversification, strategic reserves, and rapid green transitions. The country has avoided widespread fuel rationing and severe domestic shortages even after regional conflicts in West Asia threatening critical shipping routes. Despite the Persian Gulf and West Asian choke points, the country’s overall foreign trade showed a good growth in the last April-June quarter. Hopefully, the country will conquer the new trade challenges too with creative thinking. (IPA Service)
