US President Donald Trump’s latest move in the escalating confrontation with Iran has opened up a new risk for the global economy, and potentially for India’s fuel bill.
Trump said on Monday that Washington would impose a while reinstating a naval blockade on Iranian ports. He described the levy as compensation for American military efforts to secure the waterway, one of the world’s most important trade routes and a critical artery for global energy supplies.
The announcement comes at a particularly tense moment.
The Gulf is already on edge after fresh US strikes, Iranian retaliation and a series of attacks on commercial vessels. Oil markets have reacted nervously, with traders increasingly factoring in the possibility that disruptions around Hormuz could become more frequent and more costly.
For India, the development raises an uncomfortable question: could the latest crisis in the Gulf once again push up fuel prices, inflation and the country’s import bill?
India imports nearly 90% of its crude oil requirements, making it one of the world’s most import-dependent major economies. A substantial share of those imports originates in the Gulf, with crude from Iraq, Saudi Arabia, the UAE, Kuwait and Qatar passing through the Strait of Hormuz before reaching Indian refineries.
The waterway is equally important for liquefied natural gas imports that power industries, fertiliser plants and households.
That means developments in Hormuz rarely remain confined to the Gulf. Any disruption to shipping, increase in transportation costs or spike in oil prices eventually finds its way into India’s economy.
The concern is particularly acute because the latest proposal comes after months of attacks on commercial vessels, missile strikes and repeated threats to disrupt traffic through one of the world’s busiest energy corridors.
At first glance, Trump’s proposed 20% charge appears to be the biggest concern. Economists, however, say the immediate risk may come from something else entirely.
The worsening security situation around Hormuz is already pushing up the cost of moving oil.
Shipping companies operating in conflict zones face higher insurance premiums and war-risk charges. Tanker operators often demand higher freight rates to compensate for the dangers of operating in volatile regions.
Recent attacks on vessels in and around Hormuz have only heightened those concerns.
Even if India never directly pays a Hormuz transit fee, refiners could still end up paying more for crude because transportation, insurance and freight costs have risen sharply.
Markets are also building a geopolitical risk premium into oil prices. Traders do not wait for supply disruptions to occur; they price in the possibility that they might.
That is why tensions around Hormuz often move oil prices long before actual shortages emerge.
The consequences of extend far beyond petrol pumps.
A sustained increase in oil prices raises India’s import bill and puts pressure on the country’s trade balance. It can widen the current account deficit, weaken the rupee and make imports more expensive.
Higher fuel costs also tend to feed into inflation. In June, retail inflation breached the Reserve Bank of India’s .
Transportation also becomes costlier, increasing the prices of goods and services across the economy. Industries that rely heavily on energy face higher operating costs, while the government may come under pressure to increase spending on fuel-related subsidies if prices remain elevated for a prolonged period.
For the RBI, a fresh oil shock could complicate efforts to keep inflation under control at a time when policymakers are watching price pressures closely.
Simply put, a Hormuz-driven energy shock would not remain an oil story for long. It would quickly become an inflation story, a trade story and potentially a growth story.
Whether Trump’s proposal can actually be implemented remains one of the biggest unanswered questions.
The Strait of Hormuz is an international waterway governed by international maritime law, and experts have questioned whether any country can unilaterally impose mandatory transit charges on vessels using the route.
A spokesperson for the International Maritime Organization reportedly said there is no legal basis for charging compulsory tolls on ships transiting an international strait.
Iran has also pushed back against the proposal. Iranian Foreign Minister Abbas Araghchi responded sarcastically, saying that while those securing the waterway might deserve compensation, a 20% charge was excessive.
For now, the proposal appears to face significant legal, diplomatic and practical hurdles.
But even if the charge never takes effect, markets may continue reacting to the broader instability surrounding Hormuz.
There is, however, one important difference between the current crisis and earlier Gulf disruptions.
The Iran conflict earlier this year exposed the risks of India’s heavy reliance on the Middle East for energy supplies and triggered a reassessment of procurement strategies.
Over the past three months, state-run refiners have quietly diversified crude purchases beyond traditional Gulf suppliers.
Imports from Russia have increased significantly, while refiners have also expanded purchases from the United States, West Africa and Latin America. Supplies from countries such as Brazil, Guyana and Venezuela have become increasingly important components of India’s crude basket.
Refiners have also increased spot-market purchases and reduced their dependence on long-term contracts tied to a single region.
The idea is straightforward: if supplies from one region become disrupted, alternative sources can help fill the gap.
While the strategy does not eliminate India’s exposure to Gulf tensions, it does reduce the risk of a single disruption .
The future impact of Trump’s proposal will depend less on the 20% figure itself and more on how the broader confrontation between the US and Iran evolves.
If tensions ease, the proposal could remain largely theoretical and energy markets may stabilise.
But if attacks on shipping intensify, insurance costs continue rising or military action expands across the region, the consequences could be felt well beyond the Gulf.
India’s recent diversification efforts mean it is better positioned to absorb a shock than it was a few months ago. Yet the Gulf remains one of the country’s most important sources of energy, and Hormuz remains one of the world’s most critical trade corridors.
The bigger question, therefore, is not whether Trump can collect a 20% charge from ships passing through the strait.
It is whether the latest crisis turns one of the world’s most important energy routes into a permanently more expensive and unpredictable corridor for global trade. If that happens, India may be better prepared than before, but it will still feel the impact.