In RSVP-TE, if you want to use the next hop address of the adjacent router then you need to use strict in the explicit path option. If you want to use the next hop address as loopback which is not adjacent to the node then you can use the loose path option.
Your loopback is not part of MPLS and is not enabled with RSVP protocol, hence , Traffic Engineering tunnels should be explicitly set with an MPLS RSVP enabled interface.
However, if your loopback is enabled for mpls with RSVP , then there would be no problems adding a loopback as nexthop.
for TE tunnels , RSVP examines tunnel resources by sending messages from the source of the Label switch path to the destination of the LSP, these messages identifies RSVP resources, and these messages are:
As Shivlu explained if you use the next hop physical address then that is an strict hop but if you specify a loopback address as your next hop then that is considered as loose hop. Usually a loose hop is more flexible if you have multiple paths to the same destination. On the other hand when you specify the next hop as strict if that next hop goes down then your LSP goes down with it too. Although not very common but you can use a combination of loose and strict hop together.
What I pointed here is that your loopback should be MPLS enabled , and you might or might not reserve bandwidth on the loopback depends if you are setting it on the physical interface using the RSVP reservation towards the headend of the tunnel.
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