Disruptions in the Strait of Hormuz Increase Energy Costs Amid Rising Electricity Demand Due to AI

On Friday, India took a firm stance at the G20 on the global energy crisis and oil supply disruptions. Foreign Minister Dr. S. Jaishankar criticized restrictions and obstacles to oil supplies through key sea routes during the meeting of G20 foreign ministers.

He emphasized that attacks on energy trade and infrastructure are deliberate, not accidental, and constitute a calculated strategy to control prices. During the G20 foreign ministers' meeting in Atlanta on Friday, Jaishankar noted that the world is facing an energy crisis caused not by a lack of production.

According to him, the crisis stems from uncertainty, supply interruptions, rising prices, and energy access issues. At the meeting, organized by US Secretary of State Marco Rubio, he stated that the G20 must demonstrate sensible leadership to maintain open and stable energy markets.

The Foreign Minister noted that the energy market is suffering due to sanctions, disruptions, and barriers on important sea routes, and that the cost of this impact falls on the entire world, not just individual countries. S. Jaishankar also raised the issue of arbitrary differentiation between oil and gas, stating that 'the chosen concessions of some countries explain everything themselves.'

Furthermore, he discussed the interdependence of countries in the global market alongside energy security, stressing that this dependency cannot be underestimated. He reported that India proposed the 'G20 Critical Minerals Circularity' initiative. Jaishankar called on G20 countries to increase financial assistance and support technologies such as energy storage, small modular nuclear reactors, green hydrogen, and biofuels.

Gasoline and diesel prices in India may increase after the Diwali festival as rising global crude oil prices increase the burden on the government and state-owned oil refining companies. Energy expert Narendra Tanedge told Business Today TV that changes in domestic fuel prices could occur between Diwali and Christmas.

He warned that people cannot remain unaffected by growing global energy tensions. The rise in global prices will inevitably affect India, which could lead to an increase in the cost of gasoline and diesel fuel.

Tanedge added that a fuel price hike after Diwali and before Christmas is expected, noting that it will be extremely difficult for the government and oil companies to constantly cope with rising prices. Currently, Indian oil companies are under pressure due to high oil prices.

This pressure exceeds the headlines of crude oil prices. According to an Axis Bank Research report from October 23, the price of Brent Crude rose above $110 per barrel, and Dated Brent reached $140. Tanedge explained that the actual price paid by Indian refineries could be significantly higher than the stated market price due to increased costs for freight, marine insurance, and tanker crew wages.

He specified that when considering the landed price, it could be at least $20 higher than this base price, depending on the company and region. For India, additional costs could amount to about $25–$27 per barrel, depending on the source of raw materials and the refinery.

The average price of the Indian crude oil basket from October to October 26 rose by approximately 4% month-on-month, reaching $120.46 per barrel, the highest monthly average since March 2012. This increase occurred amid heightened tensions in the Middle East, leading to increased geopolitical uncertainty, marine insurance premiums, and freight rates. By October 26, the price of the Indian crude oil basket reached $123.72 per barrel.

Meanwhile, in 2026, global crude oil prices have risen by almost 80%; on Tuesday evening, Brent traded at $114.6 per barrel, WTI at $100.9, and Murban at $117.7. Increased transportation costs, marine insurance premiums, and geopolitical tensions in the Middle East have further increased the cost of crude oil imports.

The central government, state governments, state-owned oil refining companies, and the Reserve Bank of India are jointly bearing the brunt of the oil crisis. Axis Bank Research suggested in its October 23 report that this support would amount to 1.7% of GDP, based on an assumed average crude oil price of $100 per barrel; furthermore, every $10 increase in retail fuel prices increases the burden on GDP by 20 basis points. From April to September, India's crude oil imports grew by 46.3% year-on-year, reaching $90.6 billion.

Tanedge cautioned that the government and oil companies cannot indefinitely shield consumers from financial strain. He also emphasized the need to invest in foreign oil and gas assets to diversify crude oil supplies and ensure long-term supply for India.

Axis Bank Research forecasts that fiscal measures, such as increased duties and economic stabilization funds, could free up the equivalent of 0.6% of GDP, helping to limit the central government's financial decline by 20–30 basis points in the 2027 fiscal year. However, maintaining high crude oil prices in the long term may shift the majority of costs onto consumers.

The Strait of Hormuz has long been a subject of active discussion, as this sea route is responsible for supplying about 20% of the world's oil volume. Currently, tensions in the Middle East persist due to the conflict between the US and Iran. Iran refuses to open the strait without meeting its conditions, while the US continues the blockade.

However, the HSBC CEO stated that the Strait of Hormuz may lose its significance in the next five years. If this happens, it will create a serious crisis for the oil-based Iranian economy, which has suffered from US military actions.

HSBC Chief Executive Georges Ledery announced on Tuesday that the Strait of Hormuz could become redundant within five years. He explained this by saying that Gulf countries are investing in alternative logistics routes and pipelines to reduce their dependence on this strategic waterway.

Ledery also mentioned the war between the US and Iran, which has caused disruptions in this key maritime corridor. According to the CEO, the conflict highlighted the world's dependence on Hormuz, through which nearly a fifth of global oil and LNG trade passes. Although he expressed hope for a resolution to the conflict in the Middle East, he believes that the Strait of Hormuz probably will not be critically important in five years.

Speaking at the HSBC Future Forum in Dubai, CEO Ledery noted that investments in pipelines connecting oil-producing areas with ports will help Gulf countries cope with the economic consequences of the conflict. This region is capable of recovering and continuing to develop, although this will require significant funding.

According to an HSBC report, a survey of over 1600 business leaders and about 820 global institutional investors found that the Gulf region is viewed as an attractive center for investment. The HSBC CEO added that within an extensive program of projects worth $1.4 trillion planned for the Middle East, North Africa, and Turkey, there is a package of individual projects worth $872 billion.

While the HSBC CEO makes a bold statement about Hormuz, Iran continues to insist on its demands for opening this sea route. Iran asserts that the resumption of operations in Hormuz and the end of the conflict depend on meeting its conditions.

Iranian Foreign Minister Abbas Araghchi stated on Sunday that Tehran's proposal to reopen the Strait of Hormuz within seven days is still under consideration. Iran submitted this proposal in mid-September after the temporary ceasefire ended, and since then, it has been awaiting a response from the US, which is currently analyzing it.

Iran's conditions include lifting the American blockade on its ports and lifting the oil export embargo, as well as ceasing hostile actions on regional fronts. Abbas Araghchi emphasized that if the US agrees to these conditions, the strait could reopen, and negotiations would resume the next day.

On Tuesday, speaking before Russian Foreign Minister Sergey Lavrov, Araghchi also blamed the US for instability in Hormuz and called for a regional security system without foreign forces.