Long-term hedge needed against energy shocks from West Asian conflicts
India is facing an energy shock from the widening circle of conflict in West Asia, which has spilled over from Iran to the Gulf Cooperation Council countries. With tanker traffic halted at the Strait of Hormuz, the only shipping corridor out of Persian Gulf through which a fifth of the world’s oil and gas passes, Brent crude has shot up by more than $10 over the pre-war level of $65 a barrel. Nearly 55 percent of India’s daily average import of 4 million barrels comes through the 33-km-wide strait next to Iran.
Now, every $1 increase in the per-barrel cost of crude adds $2 billion to our annual oil import bill, which touched $137 billion in 2024-25. If the war drags on—with Donald Trump indicating an initial readiness for “four to five weeks”—the soaring costs will throw our trade balance out of gear and put pressure on the rupee. To aggravate the situation, our stocks amount to only 40-45 days of consumption, unlike China which is stocked up for 6 months.
There is also the human cost of the widening conflagration that has spread to Dubai, Doha, Manama and Kuwait. Iran’s retaliatory attacks, which are targeting American military installations and GCC oil assets for now, have already led to the death of one Indian aboard an oil tanker bombed by drones. West Asia is home to nearly a crore Indian workers who together remitted about $118 billion to their homeland in 2023-24. Many of them are now scrambling to get out of the war zone where hundreds of daily flights have been cancelled. The closure of airspaces has also added to the cost of other long-haul east-west flights.
The emerging reality throws an unflattering light on India’s recent decision to concede to the American demand of reducing cheaper Russian crude imports to around 1 million barrels per day from the peak of about 2 million bpd in 2025. This has left us with a thinner cushion to absorb energy shocks. It is time for New Delhi to use all its diplomatic levers to rein in the prospect of ‘forever wars’ in the region. In the short term, India must swiftly set up exit corridors for our expat brethren from areas of conflict. In the long run, we must hedge against energy shocks by ensuring wider sources of supply and a larger strategic storage.