by R. Sasankan

A pall of gloom and uncertainty has descended once again over the Strait of Hormuz as the tantalising prospect of peace in the Middle East disappeared with the renewed escalation in hostilities between the US and Iran.

Oil prices blew past $ 90 per barrel as the movement of oil tankers through the troubled waterway stalled once again, shattering hopes that oil flows would recover to near normal by the third quarter. Trading partners and market participants were overjoyed after the US and Iran signed a memorandum of understanding on June 17 to end the conflict in the region that had dragged on for over four months.

The 14-point MoU had provided a 60-day window to clinch a final deal. But the deal collapsed in less than three weeks with Iranian forces attacking three tankers claiming that they violated the "safe passage route" that Tehran had circulated in the maritime world. The US forces immediately retaliated by attacking targets in southern Iran, prompting the Iranians to strike American military bases in the region.

The Strait of Hormuz has been a critical chokepoint for crude oil flows in the region. In 2025, about 20 million barrels of oil and oil products passed through the Strait which is bound to the North by Iran and to the South by Oman and the United Arab Emirates (UAE). This amounts to nearly $ 600 bn worth of energy trade per year.

The corridor -- only about 50 km (31 miles) wide at its entrance and about 33 km wide at its narrowest point -- connects the Gulf with the Arabian Sea. The strait is deep enough for the world's biggest crude oil tankers, and is used by major Middle Eastern oil and LNG producers.

When the US and Israel began strikes on Iran on February 28, Tehran not only retaliated against its two adversaries - the US and Israel -- and their interests in the Gulf but also closed the Strait of Hormuz, sending shockwaves through the global economy.

Peace initiatives in the Gulf have floundered in the past and it is no surprise that the latest initiative has also failed. In my assessment, there could be more attempts to broker peace deals between US and Iran. However, a lasting peace deal will not be possible unless it is signed by the real players - Iran and Israel -- and not by their proxies. US President Donald Trump ought to play the role of an avuncular statesman who is able to persuade the two warring nations to drop their animosity and sign the peace deal.

The basic reason behind the war is Iran's presumed intent to attain nuclear weapons capability. Israel perceives that a nuclear-powered Iran can be a real threat to its survival and, therefore, cannot be allowed to press ahead with its nuclear ambitions. So, this is basically a war between Israel and Iran and not between US and Iran. The US got involved because it cannot afford to ride roughshod over the wishes of Israel, which insists on a nuclear-free Iran to secure its own existence.

Alternatively, any fresh peace deal that President Trump initiates should be fully endorsed by Iran and Israel before it is announced so that the Strait of Hormuz does not become a cat's paw to extract post-deal concessions through threats of closure.

Geographically, the strait is not very close to India. But any battle in Hormuz can play havoc with the Indian economy as it is the most critical maritime chokepoint handling about 50% of India's crude oil imports, 85% of its LPG supplies, and 55% of its LNG shipments. Any disruption triggers an immediate spike in global energy prices, severely pressuring India's inflation, fiscal deficit, and trade balance.

A shutdown threatens continuous refinery operations, power generation, and household cooking gas deliveries. Global crude oil price volatility directly impacts the Indian Rupee. A $1 per barrel increase in the price of crude oil raises India's annual import bill by an estimated $1.8 to $2 billion.

The surge in crude oil prices meant that India paid 60% more for crude oil imports in April-June this year at $ 49.67 billion against $ 30.8 billion in the same quarter a year ago despite a 3.4% decline in import volumes. If crude oil prices rise further, the pay- out for crude oil imports could rise considerably.

I do not see an immediate and viable solution to the US-Iran war. Hormuz will never be the same again after Iran successfully managed to close down the strait after staring down the threat from the American armada.

For India, the sensible thing would be to change its crude acquisition strategy. India may have to depend more on Russia, the US, Venezuela and Africa for its crude requirements which do not have to come through Hormuz. President Trump is keen to ensure that India buys more crude and LNG from the US. Indian refineries are designed to process heavy crudes and, therefore, Venezuela can also emerge as a major source.

The situation reminds me of the 1970s when India signed a friendship treaty with the erstwhile Soviet Union to counter then US President Richard Nixon's tilt towards Pakistan. Russia is already the single largest source of crude for India. Of late, its share in the Indian crude basket has been rising every month. Russia would like to strengthen its trade relations with India by supplying it more crude and LNG. The fraught situation in the Gulf will force India to turn towards Russia to secure its energy future.