Oil Conundrum: Why Is India Resilient, Despite Import Dependency? – Analysis

With the breakout of the USA-Israel war against Iran, threats loomed large on oil price hikes, magnifying  pressure on the global economy, combined by Trump’s tariff war. This raises a new era of global political and economic conflict, which is unlikely to decelerate in the near future. 

The war does not connote bilateral conflicts only. With Iran retaliating on American bases in Middle East countries and restricting the Strait of Hormuz for movement of oil and LNG cargoes, oil and gas shortages hover over the whole world widely. Oil prices surged to US$90 to $110 per barrel from US$70 per barrel within a week. It is first time that oil prices rose above US$100 per barrel since Russia-Ukraine war in 2022.

For India, oil is the second biggest energy source Unfortunately, unlike other major sources of energy (coal, hydro), oil energy depends largely on imports. Nearly 90 percent of oil requirement is met by import. 

Nonetheless, the state of oil import dependency in India is different from other countries. Unlike other major importing nations, oil import dependency of India does not incur a major impact on economic parameters, like manufacturing  and current account deficit in the country. 

There are two reasons that accrue a cushion to the global price hike and current account deficit. First, India diversified oil imports largely from Russia, which offered discounted price (US$10 to US$13 per barrel for Brent crude), owing to EU and USA sanctions and second, a big sum of imports is offset by exports of oil refinery products of the country. Nearly 35 percent of imports of crude oil and petroleum products was offset by exports of oil refinery products in 2024-25.

With the outbreak of the Russia-Ukraine war, followed by sanctions on Russian oil, the global landscape of oil imports  underwent dramatic  changes. It gave a new lease of life to oil hungry nations to shift oil imports from Arab nations and diversify imports from other nations. Imports by world bigger importers, like China and India, are the cases in point. 

Both China and India diversified oil imports from Arab nations to Russia. Eventually, Russia emerged the biggest supplier of crude oil to India. It accounted for 35.8 percent of India’s total import of crude oil in 2024-25, against 4.3 percent in 2021-22  (prior to the Russia-Ukraine war). This left India with a big success in overriding the oil price gambling by the Arab world and OPEC.  

However, the current major problem of oil and gas supply, due to the USA-Israel combined war against Iran, relies more on the  blockage of the Strait of Hormuz which is the world’s critical chokepoint for movement of oil and gas. It is stretching over 21 miles wide artery, with up to 100 vessels moving with oil and LNG daily. Nearly, 20-25 percent of global oil and gas (LNG) are transported through the Strait of Hormuz

The Hormuz Strait is equally important for India to import oil and LNG. India imports nearly50 percent of oil and LNG through the Hormuz  Strait. Eventually, currently larger shares of crude oil imports from Saudi Arab, Iraq and UAE and LNG from Quarter and UAE will be affected by the blockage of this Strait .

However, Iran has clarified that Hormuz Strait is closed only for vessels, associated with USA, Israel and their allies. Hence, Indian vessels are   exempted from the blockage of the Harmuz Strait. Even then, threats loom large due to ongoing war .

Eventually, despite exemptions given to India, the blockage of the Hormuz Strait will cause a disruption of oil and LNG supply to India. Larger metros in India, like Bangalore and Mumbai, have already undergone ca ritical shortage of LNG, leading to the closing down of several restaurants and hotels.  

With low chances for the war to recede in near days, the situation is likely to be volatile.  To this end, the only recourse to override the oil and gas shortages in the country is rationing of domestic supply and diversifying imports. 

According to reports, India is diversifying oil imports from non-Arab countries. In between two months period of December, 25 and January 26, which were engulfed by Trump’s threat of war,  India’s import of crude oil surged from non-Arab nations, like Angola (by 142.7 percent), Colombia (by 116.3 percent) and Nigeria (by 78.7 percent).

Nevertheless, there is a congenial factor in favour of India’s energy consumption pattern. Unlike most oil based energy consuming nations, oil based energy is largely used for transportation and cooking gas in India. The whole gamut of energy supply in India is largely supported by coal (65 to 70 percent) and hydro (9 to 10 percent). Oil supports 30 percent only of total energy consumption. 

Given these factors, India is placed in a favourable situation compared to other coutries amid the global oil crisis