The Strait of Hormuz is no longer just a geopolitical flashpoint; This has become the fault line of the global energy economy. As tensions in West Asia continue to disrupt shipping through one of the world’s most vital sea corridors, countries around the world are facing a harsh reality: Energy security is now inseparable from geopolitics. For India, which is dependent on imports for most of its crude needs, the crisis has highlighted both the strength of recent policy interventions and the limits of indefinitely shielding consumers from market realities.
The immediate impact of this conflict is visible on global crude oil markets. Brent prices have risen sharply amid fears of a prolonged disruption to Gulf supply, while freight costs and marine insurance premiums have reached multi-year highs. Shipping routes are being diverted around the Cape of Good Hope, extending delivery timelines by weeks and significantly increasing transportation expenses. Global gas markets are also under pressure following disruptions related to the closure of key liquefied natural gas export infrastructure in Qatar. Despite this turmoil, the crisis has not yet hit Indian consumers as hard as it should. Petrol and diesel prices at Indian fuel pumps have remained relatively stable, hovering around ₹95 per liter in many cities, while fuel prices in many advanced economies have risen sharply, by about 25% on average. Petrol prices in Germany and the United Kingdom have touched as high as ₹220 and ₹204 per liter respectively, while Hong Kong is recording the world’s highest fuel prices at around ₹291 per litre. This stability is no coincidence. This has been achieved through an extraordinary combination of state intervention, supply diversification and financial absorption by public sector oil companies.
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Interventions that come at a high cost
Over the past few years, India has quietly built a more resilient energy architecture. The country expanded its sourcing basket beyond the Gulf, increased strategic reserves and strengthened relationships with suppliers in Russia, the United States, West Africa and the Atlantic Basin. Union Petroleum Minister Hardeep Singh Puri recently reiterated that India’s crude supply position remains secure despite disruptions around the Strait of Hormuz, pointing to the country’s growing ability to source oil from non-Gulf origins and maintaining refinery throughput at high levels.
Taking advantage of the exit of the United Arab Emirates (UAE) from the Organization of Petroleum Exporting Countries, India signed an agreement with the United Arab Emirates to store 30 million barrels of crude oil in India’s Strategic Petroleum Reserve. The government’s response to the latest tensions has been swift. Refineries were directed to maximize LPG production to meet the growing domestic demand, especially given the dramatic expansion of LPG access under the Ujjwala scheme. LPG connections in India have increased from around 145 million in 2014 to over 33 crore today, leading to a fundamental change in household energy consumption patterns. Gas allocations for homes, public transport networks and fertilizer plants were prioritized to avoid widespread disruptions in essential sectors. Domestic LPG production was reportedly increased by about 50% during the peak of the crisis response, while all 25 fertilizer plants continued to receive about 70% of their gas requirements to maintain the agricultural supply chain. Naval deployment in the Gulf of Oman, diplomatic engagement with several countries and efforts to secure alternative shipping arrangements underline how seriously India has taken the crisis. The country’s valuable time has been bought by these measures. But they too have had to pay a heavy price.
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pressure on oil companies
India’s state-owned oil marketing companies (OMCs) are now operating under immense financial stress, selling fuel below market-linked cost to protect consumers from inflationary shocks. Mr Puri had recently indicated that under-recovery could increase sharply if high crude oil prices persist, with some estimates putting daily losses close to ₹700 crore-₹800 crore during peak volatility. The government has already reduced excise duty and imposed a temporary export ban on refined fuel to maintain supplies in the domestic market.
This strategy may be politically prudent in the short run, but it is economically difficult to sustain in the long run. Energy subsidies of this scale ultimately strain public finances, weaken the balance sheets of oil companies, and distort market signals that encourage efficient energy consumption.
The bigger challenge is that India’s weakness is structural, not temporary. Almost every major sector of the economy – transportation, logistics, aviation, manufacturing, agriculture and fertilizers – is heavily dependent on imported fossil fuels. Even if India manages to avoid immediate shortfalls, it may not remain permanently insulated from global energy shocks over the long run.
There are already signs that the government recognizes this reality. Prime Minister Narendra Modi’s appeal for responsible energy use — including reducing unnecessary travel, saving fuel and encouraging remote work where possible — reflects the administration preparing the public for a prolonged period of uncertainty. This kind of message would have seemed extraordinary just a few years ago. Today this seems practical. There is a strong argument for calibrated correction. India has managed inflation relatively effectively over the past decade compared to many major economies, leaving some room for measured increases in petroleum prices without triggering uncontrolled inflation. Consumer price index inflation remained comparatively moderate in early 2026 – around 3.2% to 3.5% during the first four months of the year – suggesting that limited price rationalization may still be economically manageable. Gradual changes in global energy costs will reduce the fiscal burden on the state, bring stability to oil marketing companies and promote more responsible consumption patterns.
For now, India has demonstrated remarkable agility in dealing with one of the most serious energy disruptions in modern history. Supplies have remained stable, panic has been avoided, and the government has managed to protect ordinary citizens from the worst immediate consequences.
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Realities of the New Energy Age
But energy shocks of this scale ultimately demand economic realism. The real cost of fuel cannot be avoided forever. India’s challenge is no longer just to survive the crisis; It is preparing the public and the economy for a world in which energy security will remain delicate, contentious, and deeply political for years to come.
Recent reports suggest Indian refiners continue to aggressively diversify sourcing, while global analysts warn that a prolonged Hormuz disruption could widen India’s fiscal deficit and weaken the rupee. This should serve as a reminder that the situation is not a temporary title cycle. It marks the beginning of a new energy era – one in which resilience, diversification and conservation will matter as much as diplomacy. The government has increased petroleum product prices several times by about 7% cumulatively. Yet, this piecemeal approach neither adequately matches international crude oil prices nor meaningfully reduces the burden on OMCs. Reports suggest that OMCs are incurring losses of ₹700 crore to ₹800 crore per day, and only an additional 13% hike over the existing 7% will eliminate these losses. It is also reported that the government has returned to adjusting fuel prices in line with fluctuations in international crude oil prices. However, frequent revisions create uncertainty for consumers trying to manage household and business budgets. Instead of incremental increases, the government should impose a lump sum price increase of at least 13% on petroleum products, including petrol, diesel and aviation turbine fuel. Such a move, although difficult, would reduce uncertainty, stabilize OMC finances, and allow prices to remain stable until there is a significant change in global crude oil prices.
Thiruvananthapuram S. Ramakrishnan is a public policy expert
published – May 27, 2026 12:56 am IST
