After Iran showcased its ability to profit from the Strait of Hormuz by charging ships for transit, Indonesia is contemplating similar steps for the Strait of Malacca. This trend indicates a shift where crucial sea trade routes are seen as assets that can be controlled and monetized. India, heavily reliant on the Strait of Hormuz for energy imports, faces significant vulnerability due to this development.
About half of India’s crude oil and nearly 90% of its LPG and LNG imports pass through the Strait of Hormuz. With the closure of this route, India has been diverting 70% of its crude imports through longer alternatives like the Arctic and the Baltic, which may not be economically sustainable in the long term. Additionally, more than a third of India’s global trade, particularly with Southeast Asia, passes through the Malacca Strait, making it a critical trade artery for the country.
The potential imposition of taxes or regulations on trade routes like Hormuz and Malacca could have profound systemic impacts on economies. Rising costs and increased exposure to external political decisions beyond a country’s control are some of the challenges highlighted. India is proactively investing in port infrastructure, expanding refining capacity, and building strategic petroleum reserves to enhance its resilience in the face of such uncertainties.
To mitigate risks associated with choke-points, India is exploring diversification strategies such as sourcing oil from the West, Russia, and Africa, and investing in regional connectivity. Emphasizing domestic electrification of transport and renewable energy expansion can reduce reliance on maritime routes and enhance energy security. Strengthening buffer mechanisms and strategic reserves can offer better resilience against market fluctuations despite limitations in handling transit constraints.
Indonesia’s contemplation of revenue generation from the Strait of Malacca introduces a new strategic risk for India. Addressing this challenge requires a holistic approach that integrates energy planning with maritime strategy and economic policy with geopolitical considerations. Strategic investments in infrastructure and energy diversification are crucial for India’s long-term energy security and economic stability.
