India and other oil-importing countries that are dependent on energy supplies through the Strait of Hormuz are likely to negotiate bilaterally to secure imports via coordinated transit corridors, Moody’s Ratings has estimated. The credit rating agency also predicted that a return to pre-war traffic volumes is unlikely this year.
The full reopening of the Strait, which accounted for one-fifth of the global energy supplies before the war, has been delayed by the deadlock between the US and Iran.
Amid bleak prospects of a swift and durable settlement, Moody’s said the transit flows will gradually improve, but through bilateral channels rather than a general reopening. Its report on geopolitical risks suggests that the process will be slow, opaque, and subject to interruption.
“We expect oil importers — particularly China, India, Japan and Korea — to negotiate passage bilaterally with Iran, potentially through coordinated transit corridors such as those reportedly emerging near Larak Island and through Omani territorial waters… A return to pre-conflict traffic volumes in 2026 is unlikely,” it said, as quoted by news agency PTI.
Moody’s said even if safe passage in the Strait were to resume in the next six months, oil supply would remain constrained, with persistently higher and more volatile energy prices and broader knock-on effects.
The disruption to shipping through the Strait has become a structural supply constraint to global energy flows rather than a temporary supply shock, Moody’s said, adding that it expects the disruptions to continue through autumn, alongside occasional oil price fluctuations outside the $90-110 range for the rest of the year.
The US and Iran are also at odds over the framework guiding maritime traffic along the Strait. Tehran has established an agency for toll collection, whereas Washington has pushed for freedom of navigation and restoring the status quo.
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Cut in GDP estimates
Moody’s, in its May Global Macro outlook, has also cut GDP growth estimates by 0.2-0.8 percentage points for several major economies, attributing it to higher energy prices. Brent crude has remained above $100 per barrel for the better part of the war owing to the supply bottleneck.
The report has also slashed India’s GDP growth estimate for 2026 by 0.8 percentage points to 6 per cent.
“India is among the most exposed, given around 46 per cent of its crude oil imports come from the Middle East, its sensitivity to currency depreciation and pressure on its current account and fiscal management,” Moody’s said.
Trade through the chokepoint also accounted for 60 per cent of India’s LNG imports, and a staggering 90 per cent of its LPG imports in peacetime.
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Moody’s warned that persistently higher prices and scarcity of energy products will feed into headline and core inflation.
“This will complicate the path for monetary policy across major economies, raise production costs across energy-intensive sectors, erode household purchasing power and tighten financing conditions for exposed borrowers,” it said.
Moody’s expects inflation in India to average 4.5 per cent in 2026, up 1 percentage point from its earlier projection.
PM Modi bats for austerity measures
On Sunday, Prime Minister Narendra Modi urged citizens to take steps to cushion the impact of energy supply disruptions owing to the war in West Asia. Among these measures were avoiding non-essential foreign travel and gold purchases for a year.
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Since the beginning of the conflict on February 28, India has taken a host of measures to offset its impact on energy consumers, including invoking the Essential Commodities Act to regulate the production and supply of natural gas and Liquefied Petroleum Gas (LPG).
While global oil prices increased by about 50 per cent, Indian oil companies have offset the impact on domestic consumers. However, prices have gradually risen, and in the latest, oil companies on Friday announced a hike of Rs 3 per litre for petrol and diesel.
‘Ayatollah booth’ takes shape
Traffic through the Strait has fallen by more than 90 per cent from pre-conflict levels since Iran blocked the Strait of Hormuz following the US and Israel’s coordinated strikes on February 28. High insurance costs and the presence of sea mines could be attributed to the drop in maritime traffic.
The Islamic Revolutionary Guard Corps (IRGC) Navy has been targeting vessels bypassing Tehran’s restrictions, forcing them to take an alternate route through its territorial waters near Larak Island and pay tolls.
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Initially called the ‘Ayatoll booth’ in diplomatic circles, Tehran formalised the arrangement on May 5 by establishing the Persian Gulf Strait Authority (PGSA), a government agency for toll collection.
In the meantime, the US Navy has maintained its blockade of Iranian ports. Trump said Washington will focus on restoring maritime traffic and returning the status quo to pre-war levels.
