Oil prices soared nearly 3% on Tuesday, the highest in four weeks since the as the US reimposed its naval blockade on Iran while Iran stepped up its control over the strategic water attacking vessels disobeying its laws. Besides reinstating naval blockade, Washington has announced that the United States will charge 20 per cent on all cargo shipped through the Strait of Hormuz.
Two major global crude oil benchmarks Brent crude futures and WTI rose more than $2 a barrel before paring some gains. Brent crude climbed to about $83 a barrel after Trump’s announcement, up sharply from around $76 on Friday. Brent had surged 9.6% in the previous session, its biggest daily gain since May 2020.
How will this affect India?
Strait of Hormuz which forms a gateway to the Western world and vice versa is accountable for one fifth of global oil and gas transport, with a majority of its buyers from Asia. India alone imported about 40-50% of oil from the Strait of Hormuz during the pre-war period. India is the third largest consumer with 88% dependency on import. According to reports, India is amongst the 3 Asian economies most vulnerable to high oil prices besides Thailand and South Korea.
The US President had earlier said that America would assume responsibility for guarding the Strait of Hormuz, arguing that Washington should be paid for securing the strategically important waterway. However, Iran’s naval officials have rebutted the claims and denied issuing any such authority to the US. According to logistics expert, the proposed 20% transit fee could more than double the cost of shipping oil through the Strait of Hormuz.
The Iran’s Islamic Revolutionary Guard Corps (IRGC) in a statement on Monday said the only way to restore the normal shipping traffic in the Strait of Hormuz is to end the US military’s intervention in the critical waterway and threatened that “continued interference could lead to greater incidents in the global oil and gas sector.”