Introduction
India imports over 85% of its crude oil and nearly 50% of its natural gas requirements. This heavy import dependence makes the domestic energy basket acutely sensitive to global geopolitical disruptions, particularly conflicts involving major fossil-fuel producers and vital maritime transit corridors, such as the Russia-Ukraine war and US-Iran confrontations.
Impact of the Russia-Ukraine War
The Russia-Ukraine war presented a mix of strategic opportunities and macroeconomic challenges for India's energy sector:
- Import Basket Restructuring: Prior to 2022, Russian crude accounted for less than 2% of India's import mix. Following Western sanctions, India capitalised on heavily discounted Russian Urals crude, which escalated to nearly 35% of total crude imports by FY 2024-25, yielding substantial foreign exchange savings and insulating domestic retail fuel prices.
- Refining Arbitrage and Global Role: Domestic refiners processed discounted Russian crude and exported value-added refined petroleum products (such as diesel and aviation fuel) to Europe, strengthening India's position as a global refining hub.
- Payment and Logistics Hurdles: The decoupling of major Russian banks from SWIFT and Western-imposed price caps necessitated alternate transaction mechanisms involving currencies such as the UAE Dirham and Indian Rupee. Tanker availability and surging maritime insurance rates added friction to imports.
- Collateral Shocks on Gas and Inputs: The initial spike in global liquefied natural gas (LNG) prices increased domestic input costs for city gas distribution and triggered a sharp rise in government fertilizer subsidies.
Impact of US-Iran Tensions
Escalating friction between the United States and Iran has directly curtailed supply flexibility and heightened chokepoint vulnerabilities:
- Loss of a Key Supplier: Strict US secondary sanctions under CAATSA compelled India to halt oil imports from Iran, which had previously constituted approximately 11% of India's crude basket on favourable credit and freight terms, pushing domestic refiners into costlier spot markets.
- Strait of Hormuz Vulnerability: The Strait of Hormuz mediates 20% to 25% of global maritime crude oil trade and roughly 20% of global LNG trade. US-Iran hostilities and proxy conflicts in the Persian Gulf routinely escalate war-risk insurance premiums, inflate freight rates, and endanger essential energy supplies sourced from Iraq, Saudi Arabia, and Qatar.
Mitigation and Way Forward
To insulate the energy ecosystem against volatile geopolitical flashpoints, India must reinforce its strategic autonomy through proactive structural measures:
- Accelerating Alternative Fuels: Advancing the 20% ethanol blending target (E20) and deploying green hydrogen via the National Green Hydrogen Mission will curtail baseline crude consumption.
- Strengthening Strategic Reserves: Expanding the commercial-cum-Strategic Petroleum Reserves (SPR) network under public-private partnerships provides vital supply buffers during acute disruptions.
- Geographic Diversification: Widening crude procurement from the Americas (such as the United States, Guyana, and Brazil) hedges against regional chokepoints and maritime blockades.
Conclusion
India's diplomatic non-alignment and strategic procurement effectively cushioned its economy against initial supply disruptions caused by both conflicts. Sustained energy security, however, hinges on deepening fuel diversification, scaling domestic storage infrastructure, and accelerating the renewable energy transition.