Through the Strait of Hormuz, 20 per cent of the world’s oil supplies (20 million barrels per day (mbd)) moved before the conflict began in February 2026. Once the war started, the strait was effectively blocked by Iran. Even when transit was permitted for specific vessels, the actual volume of oil moved was negligible. Given the ever-changing threats from the USA to target Iranian infrastructure, the future of this vital passage remains volatile.
Bigger Picture
Saudi Arabia has been successful in restarting the use of the east-west pipeline to move about 7 mbd of oil through Yanbu port. However, this also depends upon another strait which is controlled by the Iranian proxy Houthis from Yemen. The UAE has been able to transport another 1.8 mbd of oil, avoiding the strait through Fujairah terminal on the Gulf of Oman. As a result, the world has lost about 12 mbd of oil, the largest loss so far during any oil shock. But India needs to be ready for a scenario when there will be no flow of oil at all from the Middle East countries.
Besides mining the Strait of Hormuz, there may be even a larger disaster. It may result in Iran destroying oil and gas installations in Saudi Arabia, the UAE, Kuwait, Qatar and Oman. This will cause the loss of oil supplies for a very long time, as much as five years or more. Undoubtedly, this is the worst-case scenario. But we cannot rule it out. Oil prices then could climb above USD 200 per barrel. Now is the time for India to prepare to manage the energy sector under any possible scenario. Whether it was a stroke of luck or good planning, India had negotiated to buy 2.3 million tonnes of LPG from the USA last year. We need such strategic planning urgently and here are some recommendations.
A high-level cabinet sub-committee consisting of all the ministries dealing with energy like ministry of power, petroleum and natural gas, ministry of coal and the department of atomic energy, should be formed and presided by a senior minister to coordinate meeting energy requirements immediately. This committee should meet regularly to get reports from the technical modelling group suggested below. I have been suggesting this for a long time during earlier oil disruptions.
A technical group of experts with backgrounds in energy and related fields should be formed to develop a simulation model that can predict India’s energy situation under various scenarios and also suggest different strategies to help prepare better for any contingency.
Meeting LPG requirement in the residential sector should be the top priority. Today, 100 per cent of households have LPG connections. About 75 per cent of them meet their cooking needs through LPG. Any disruption in residential LPG will cause chaos. The government has already requested refineries to produce 40 per cent more. But it is still an easy target.
With the latest IT tools, it should be possible to generate high-quality oil and gas data on a real-time basis of storage at different places like high seas in India-bound oil ships, import terminals, refineries, marketing terminals, service stations, etc. The OECD countries have 90 days of oil storage to meet their import needs, and so does China. India has not been able to have any meaningful strategic petroleum reserves, though our import dependence is 89 per cent of oil consumption, and in the case of LPG, around 46 per cent and natural gas is 50 per cent. In recent years, India has increased the number of countries from which oil is imported from 27 to 41. This is of great strategic value. Still, we need a sound strategy to face the impending crisis when choke points like the Strait of Hormuz or the Red Sea are blocked.
Every effort should be made to reduce oil and gas import. We need to revisit our exploration strategy to attract investment. Though it is not good politics, the government should allow the passthrough of the oil price increase while subsidising through direct benefit transfer to those below the poverty line. Also, faster electrification of railways and reducing/eliminating petrol and diesel for backup power production is another strategic move to reduce oil demand.
We do not have the luxury of implementing the above recommendations in the usual bureaucratic manner. Only the PMO’s office, if convinced of the urgency, can move fast. Developing computer models is not rocket science. In fact, there are some institutions that have already developed very sophisticated models to study different energy sector problems, but not to deal with the black swan-type scenarios discussed here. What is critical here is the speed in implementing recommendations, identifying real experts with different backgrounds and access to the highest decision-making government agency. n
The author has over 50 years of experience in international oil industry and served as a member on the Exploration Advisory Committee to ONGC.