As conflict in West Asia continues unabated, India finds itself confronting the rising cost of economic patriotism AI generated image On 10 May, Prime Minister Narendra Modi stood before a crowd in Hyderabad and asked Indians to change how they live. Avoid foreign travel for at least a year. Work from home where possible. Stop buying gold. He called it economic patriotism. A war involving the United States and Iran had disrupted oil supply routes, driven up the price of every barrel India imports, and was putting pressure on foreign-exchange reserves. The message was direct: if households pulled back, the country’s external accounts would be better placed to absorb the shock. The appeal identified a real problem. India imported 89.44 per cent of the crude oil it consumed in FY 2024-25, according to Energy Statistics India 2026, published by the Ministry of Statistics and Programme Implementation. Domestic crude production fell from 36.94 million tonnes in 2015-16 to 28.70 million tonnes in 2024-25, a 22 per cent decline over nine years. Proved oil reserves fell 12 per cent over the same period. Entrenched Dependency For decades, India’s economic vulnerability has been tied to the politics of West Asia. From the oil embargoes of the 1970s to the Gulf War in 1991 and the Iraq conflict in 2003, every major upheaval in the region has reverberated through India’s inflation, fiscal deficit and currency markets. India’s 1991 balance-of-payments crisis itself was worsened by soaring oil prices and instability in the Gulf, forcing New Delhi to airlift gold reserves abroad and eventually launch economic liberalisation. More than three decades later, India is a much larger economy, yet its dependence on imported energy remains deeply entrenched. So, when US and Israeli military operations disrupted the Strait of Hormuz in late February this year, this structural dependence produced a price shock with no modern precedent. The Petroleum Planning and Analysis Cell recorded an average Indian crude basket price of 113.49 dollars per barrel in March 2026, up from 69.01 dollars in February. The basket peaked at 157.04 dollars on March 23. In January, it had been 63 dollars. In seven weeks, India’s official crude cost nearly doubled. Retail fuel prices were not adjusted. The government held pump prices steady. Oil marketing companies: Indian Oil, BPCL, and HPCL absorbed the gap between the landed cost of crude and what consumers paid at the petrol station. The fiscal pressure was immediate and significant. The import bill, the subsidy exposure, and the current-account position all deteriorated at once. India today balances ties with Iran, Israel, Saudi Arabia and the United States simultaneously, a diplomatic tightrope where military escalation abroad can swiftly translate into higher transport and food costs at home. India has spent the past decade broadening its supplier base, increasing purchases from Russia, the United States and parts of Africa to reduce overdependence on the Gulf. The Ukraine war accelerated that shift, with discounted Russian crude becoming a crucial buffer against inflation after 2022. However, the Hormuz crisis has demonstrated the limits of diversification and even alternative supply chains remain vulnerable when the world’s most critical maritime oil corridor is destabilised. The Prime Minister’s appeal to households was the government’s public response to that deterioration. Reduce fuel use. Skip the foreign holiday. Do not buy gold. Each of these asks the citizen to bear a share of the external adjustment directly. Two of the three have some economic logic in the immediate crisis. The third: the appeal on gold runs into a contradiction that the speech did not acknowledge. At the same moment Modi was asking households to stay away from gold, the Reserve Bank of India was sitting on one of the most profitable positions in global markets. Gold prices rose more than 60 per cent in 2025, the strongest annual performance since 1979, and stayed elevated into 2026. RBI disclosures show India’s official gold reserves at 880.52 tonnes by March 2026. Gold’s share of total foreign-exchange reserves rose from 13.92 per cent in September 2025 to 16.7 per cent by the end of March 2026. Between 2023 and March 2026, the RBI repatriated approximately 280 tonnes of gold from overseas custodians: the Bank of England and the Bank for International Settlements, to domestic vaults. The domestically held share of India’s official gold stock went from 38 per cent in 2023 to nearly 77 per cent by March 2026. Misplaced Presentation The central bank was accumulating and repatriating the same asset that the Prime Minister was asking households to stop buying. Both moves were rational. Neither contradicts the other on its own terms. The contradiction is in presenting them to the same citizen as if they belong to the same policy conversation, which they do not. Oil and gold are both imported and both are priced in dollars. That is where the similarity ends. Oil is a fuel and an industrial input. When its price rises, transport costs go up, the current-account deficit widens, inflation picks up, and the fiscal position tightens. The damage is immediate and spreads across the entire economy. Gold sits in vaults and lockers. Its price movements change balance-sheet valuations, not factory output or freight rates. Treating the two as interchangeable levers in an external-account crisis fuses two problems that need separate responses. The last time India’s external accounts shifted sharply because of oil was for the opposite reason. In 2020-21, the first full pandemic year, total petroleum product consumption fell from about 214 million tonnes to roughly 195 million tonnes, according to PPAC data, the steepest annual decline in decades. Planes were grounded. Freight fell. Diesel demand collapsed. The Economic Survey 2020-21 recorded a rare current-account surplus and linked it in part to this compression of oil imports. The import bill fell not because India had diversified its energy base or reduced its dependence on foreign crude, but because the economy had stopped moving. The 2026 shock is structurally different. The economy is fully open. Fuel demand is at or above pre-pandemic levels. The problem is not that Indians are burning too much oil. The problem is that the barrels became more expensive and harder to source overnight. The Hormuz Shock US and Israeli military operations against Iran, launched in late February, hit the Strait of Hormuz, the 33-kilometre passage through which roughly 20 percent of the world’s traded oil moves daily. Iran declared the Strait closed. Tanker traffic fell toward zero. West Asian crude deliveries to Indian refineries collapsed. Shipping data cited by Business Standard show India purchased a record low 910,000 barrels per day from West Asia in March 2026, compared to 3 million barrels per day in February. Russian crude partially compensated, but Russian prices swung with the geopolitical temperature and rerouting supply at that volume takes time. PPAC had to rewrite its own basket formula to keep pace. For three years, the formula had weighted Dubai and Oman crude at 79 per cent and Brent at 21 per cent, reflecting India’s historically high dependence on Gulf supply. By March, with West Asian imports down to 16 per cent of total volumes, that formula no longer reflected what Indian refiners were paying. PPAC changed the weights to 61 per cent Brent and 39 per cent Dubai-Oman,the first mid-year formula revision in the basket’s history, according to Business Standard. Even under the revised formula, the March average held at 113.49 dollars per barrel. The peak of 157.04 dollars on March 23 was recorded under the old formula, before the revision pulled the official number down. The government’s response was to hold pump prices, cut excise duties on petrol and diesel after the Ram Navami holiday, and ask citizens to use less fuel. The excise cut was a relief measure. It reduced some pressure on oil marketing companies and gave consumers a partial offset but did not address the structural position. India’s oil import dependence has been rising for a decade. Domestic crude production has fallen every year since 2011-12. The government has pursued diversification of crude suppliers: India now imports from approximately 40 countries, according to the Ministry of Petroleum and Natural Gas , and has made genuine progress on alternatives. The 20 per cent ethanol blending target was achieved in 2025, five years ahead of schedule. Electric vehicles reached 8 per cent of new vehicle registrations the same year. These are real gains. They have not yet moved the import dependence ratio in a measurable direction. At 89.44 per cent in FY 2024-25, structural crude dependence is higher now than it was a decade ago. When the Prime Minister asked citizens to drive less and work from home, he pointed at real levers. Reduced household fuel consumption does reduce the import bill at the margin. But the arithmetic of a basket that moved from 63 dollars to 157 dollars in seven weeks means that behavioural adjustment at the household level is a small fraction of the required response. The larger part has to come from subsidy design, tax policy, and the pace of the energy transition. Those are institutional and fiscal decisions. They are not made at the jewellery counter. The Gold Windfall Gold has always been central to India’s external position. India is one of the world’s largest importers of the metal. Total gold import value ran at approximately 55 billion dollars for the first eleven months of 2025, according to World Gold Council estimates, 2 per cent above the prior-year figure in value terms. The government has tried to moderate physical demand through import duties and by promoting paper gold alternatives: Sovereign Gold Bonds, gold ETFs, and digital gold via UPI. World Gold Council data show digital gold purchases through UPI rose from 8 billion rupees in January 2025 to 21 billion rupees in December 2025, a genuine three-fold increase. The underlying preference for physical metal has not shifted comparably. This resistance is not irrational. A substantial share of gold demand in India is tied to marriage, inheritance, and savings decisions made by households with limited access to financial instruments they trust. Sovereign Gold Bonds offer a yield and liquidity advantages on paper. In practice, physical gold transfers across generations without paperwork, holds value outside institutional systems, and carries social and cultural weight that no bond can replicate. The government’s difficulty in redirecting household gold demand is not a failure of financial literacy. It is a reflection of what physical gold represents in the lives of the people being asked to forgo it. The RBI arrived at a version of the same conclusion. After the United States and its allies froze Russia’s overseas gold reserves in 2022, central banks globally reassessed how much of their bullion should remain under foreign jurisdiction. The RBI began systematically repatriating gold from the Bank of England and the Bank for International Settlements. In March 2023, 437 tonnes of India’s official gold were held overseas. By March 2026, that figure had fallen to 197.67 tonnes, with 680 of the total 880.52 tonnes now held domestically. The Bank moved gold home because it judged that physical possession under domestic jurisdiction was safer than a claim on a foreign custodian in an unstable geopolitical environment. That is the same judgment a household makes when it keeps gold in a locker rather than in a financial account. The price rally made the timing of this accumulation and repatriation exceptionally profitable. Gold rose more than 60 per cent in 2025. The RBI’s mark-to-market gain on its gold portfolio runs into tens of billions of dollars. Gold’s share of India’s total forex reserves climbed from roughly 10 per cent in early 2024 to 16.7 per cent by March 2026, not because the RBI bought heavily in that period, but because the price of what it already held rose sharply. The sovereign balance sheet grew stronger precisely because the RBI had accumulated the asset the Prime Minister was asking citizens to avoid. This is not government hypocrisy in a simple sense. The RBI’s reserve management decisions and the government’s appeal to household consumption habits operate through different institutions and serve different objectives. The RBI holds gold as a sovereign reserve asset. Household gold imports appear in the trade deficit. The two are institutionally and fiscally separate. There is no automatic mechanism by which the RBI’s mark-to-market gold gains offset India’s crude import bill, and even if there were, using central bank reserves to finance a current-account deficit carries its own risks. The tension is real regardless. The state is telling one set of actors — households — to stop buying an asset the state itself is holding and profiting from. The appeal may be fiscally defensible on narrow grounds: household gold imports do use foreign exchange and do widen the trade deficit. But it asks for a sacrifice that the sovereign is not making and is not being asked to explain. A citizen who reads that the RBI’s gold holdings are worth more than ever, that the Bank has brought gold home from London for safekeeping, and that the government’s reserves are partly insulated from the oil shock because of that gold — and is simultaneously told to stop buying gold for the sake of those same reserves — is receiving a message that does not add up. The honest version of that message would acknowledge two things. First, India’s oil dependence is a structural problem decades in the making, not a crisis that households created or can solve. Second, the gold question is two separate questions: what the sovereign holds as a reserve asset, and what households buy as savings. The first is a reserve management decision that should be explained on its own terms. The second requires better financial alternatives, not moral appeals. Until those two conversations are separated, the Hyderabad speech asks the right citizens to bear the cost of the wrong problem.
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