Energy Shock

As the conflict between the United States, Israel and Iran intensifies, the Strait of Hormuz - the narrow channel through which a fifth of globally traded oil passes - has become fraught after Tehran blocked the strait. For India, the consequences are already being felt in boardrooms, refineries and, potentially, household budgets.

India consumes roughly six million barrels of oil a day. Of that, between 2.5 and 2.7 million barrels - nearly half - normally transit Hormuz. Around 60 percent of its LNG imports and almost all its LPG shipments also pass through the same waters. Overall, the country imports about 89 percent of its oil and half its gas needs.

Earlier, Petroleum Minister Hardeep Singh Puri had said that India’s combined strategic petroleum reserves and commercial stocks could meet demand for up to 74 days in the event of global turbulence. While that cushion buys time, it does not eliminate risk. Every $1 increase in international crude prices adds roughly $1.4 billion to India’s annual import bill. Should the war drag on and prices climb by $10 or $20 per barrel, the arithmetic quickly becomes sobering. A wider current-account deficit would pressure the rupee. A weaker currency would make imports costlier still. Eventually, higher crude costs would filter through to petrol and diesel prices, raising transport costs, food prices and overall inflation.

Gas markets are no less exposed. India imports about half its gas requirements, much of it routed via Hormuz. Anticipating potential restrictions after Qatar temporarily halted LNG production, some Indian companies have already trimmed gas supplies to industries by 10 percent to 30 percent. For Indian consumers, the question is immediate: should they stock up? The instinct to hoard fuel or LPG cylinders is understandable but panic buying would strain local supply chains without altering national inventories.

For India, one obvious alternative supplier in a Gulf crisis is Russia. Discounted Russian crude had shielded India from earlier price spikes and Russian purchases could again mitigate the pressure of rising prices and stabilise supplies. But earlier this year, India and the United States concluded an interim tariff arrangement under which Washington waived a 25 percent ‘penalty’ tariff on Indian exports, linked in part to Delhi scaling back purchases of Russian crude and offsetting them with imports from America or Venezuela. A renewed pivot towards Moscow, even if driven by Middle Eastern instability, could reopen that bargain.

For Indian households, the tremors are already visible. Anticipating possible restrictions after Qatar temporarily halted LNG production, Indian companies have reportedly reduced gas supplies to certain industries by between 10 percent and 30 percent. In the end, the present war underscores a structural vulnerability. Rapid economic growth has locked India into heavy import dependence, much of it channelled through a single, narrow waterway. Diversifying suppliers, expanding storage, accelerating renewables and balancing relations among rival powers are now immediate necessities.