. ANALYSIS
Jayanta Roy Chowdhury
New Delhi, March 2 (.) As the Iran-US conflict swept across the Persian Gulf, India is confronting a familiar but increasingly urgent dilemma – how does it shield its energy lifelines from a war it does not control but cannot escape.
New Delhi’s response is part quiet contingency planning to insulate it from any coming oil price shock, while trying to reassure markets that the scale of its exposure will not impact India’s energy-hungry economy.
On Monday, Hardeep Singh Puri, India’s minister for petroleum and natural gas, convened senior officials and executives from state-run energy firms to review the availability of crude oil, liquefied natural gas (LNG), liquefied petroleum gas (LPG), and refined products.
The ministry struck a calm public tone, stating it was “continuously monitoring the evolving situation” and would take “all steps” to ensure availability and affordability.
Behind that reassurance lies twin stark strategic realities– Roughly half of India’s crude oil imports of about 2.5 to 2.7 million barrels per day, along with nearly 60 per cent of its LNG, transit the Strait of Hormuz, the narrow waterway now once again at the centre of a new war which threatens the global economy.
Secondly, crude prices have been constantly rising since the war began and at one time touched USD 78 for a barrel of Brent crude on Monday, up by over USD 5 from Friday’s closing. Citi forecast’s that Brent crude will trade in the USD 80-90 in the coming week.
A prolonged disruption of crude and gas supplies from the Gulf would reverberate through India’s economy, driving up prices, insurance costs, and logistical complexity almost overnight.
India’s vulnerability is not new; every time the Gulf has gone up in flames – either because of a war in Iraq, tension between Israel and Lebanon or attacks by Houthi rebels in Yemen, oil markets in Asia have felt the tremors.
However, the current crisis comes at a moment when geopolitical risk in West Asia is unusually concentrated. Rapidly increasing tensions between Iran and the US, following the reported killing of Iran’s supreme leader, have revived fears of tanker harassment, missile strikes, or even temporary closure of Hormuz.
India imports the bulk of its energy from Gulf countries such as Iraq, Saudi Arabia, the UAE, Qatar, and Kuwait. For New Delhi, the threat is less about total cut-off of energy supplies than about cascading shocks from supply bottlenecks, which not only include price spikes, but also shipping delays, and a hit in its competitiveness as an exporting nation because of higher freight costs.
To blunt those risks, New Delhi has been trying to diversify its energy sources as well as trading routes. Thus Russian crude become a critical buffer ever since 2022, whenever Gulf supplies faltered.
Imports from the United States, Guyana, and other non-Gulf producers have also expanded, giving Indian refiners greater flexibility to reshuffle its crude basket.
With one of the world’s largest refining capacities of around 258 million metric tonnes per annum, with plans to expand to 320 million MT, India has the technical ability to process a wide range of crudes, an often-overlooked advantage in crisis scenarios.
Gas and cooking fuel, however, are more fragile. India remains tied to long-term LNG contracts with Qatar, including a 7.5 million tonnes per annum deal recently extended for two decades, and a separate 10-year agreement with Abu Dhabi National Oil Company.
While these provide volume certainty, physical delivery still depends on safe passage through Hormuz. Spot-market flexibility allows India to divert cargoes from Australia or North America, but at higher prices and with longer shipping times, ending up making India’s energy supplies far more costly.
The war in West Asia has already caused a 6 per cent spike in natural gas futures and this will only worsen if the war continues.
India’s underground crude oil reserves at Mangaluru, Visakhapatnam and Karnataka’s Padur currently hold about 5.33 million metric tonnes, equivalent to 10 days of demand, and provide a limited cushioning.
When combined with stocks at refineries and ports, the total rises to around 74 days. Plans are underway to add six new reserve sites, eventually targeting 90 days of cover. However, there is no comparable buffer for LNG or LPG, making gas and cooking fuel the weakest links in India’s energy security chain.
War-risk insurance premiums have risen by an estimated 25 to 50 per cent, freight rates are climbing, and some LNG tankers have reportedly begun diverting away from Hormuz.
For refiners and importers, these costs compress margins and complicate procurement decisions, while for policymakers, they sharpen the trade-off between market pricing and political pressure to keep fuel affordable.
India, like many other trading nations, has also been trying to carve out a new shipping route as the Arctic melts. Using an extension of the Chennai-Vladivostok route through the Arctic, New Delhi wants to avoid the troubled though far shorter Gulf route.
However, that is a future project for Indian policymakers and shippers and for the time being, the even more costly route via the Cape of Good Hope is the only viable passage for Indian exporters.
. JRC .
