India’s energy strategy needs price correction
The Strait of Hormuz is no longer just a geopolitical flashpoint; has become the fault line of the global energy economy. As tensions in West Asia continue to disrupt shipping in one of the world’s most critical maritime corridors, countries around the world face a harsh reality: Energy security can no longer be separated from geopolitics. For India, which relies heavily on imports for its crude oil needs, the crisis has exposed both the power of recent policy interventions and the limits of protecting consumers from market realities indefinitely.
The direct impact of the conflict is beginning to be seen on global crude markets. Brent prices have risen sharply on fears that supply in the Gulf will be disrupted for a long time, while freight costs and marine insurance premiums have also climbed to their highest levels in recent years. Shipping routes are being shifted around the Cape of Good Hope, delivery times are being extended by weeks and shipping costs are increasing significantly. Global gas markets also remain under pressure following disruptions linked to the closure of key liquefied natural gas export infrastructure in Qatar. Despite this turbulence, the crisis has so far not hit Indian consumers as severely as it should have. Petrol and diesel prices at fuel pumps in India have remained relatively stable, hovering around ₹95 per liter in many cities, with fuel prices rising rapidly by around 25% on average. While gasoline prices in Germany and the UK exceed the equivalent of roughly ₹220 and ₹204 per litre, respectively, Hong Kong continues to record some of the highest fuel prices in the world, at around ₹291 per litre. This stability is not a 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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High cost interventions
Over the past few years, India has quietly built a more resilient energy architecture. The country has expanded its resource basket beyond the Gulf, increasing strategic reserves and strengthening ties 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 oil supply position remains secure despite disruptions around the Strait of Hormuz, pointing to the country’s increasing ability to supply oil from non-Gulf sources and maintain refinery production at high levels.
Taking advantage of the United Arab Emirates’ (UAE) withdrawal from the Organization of Petroleum Exporting Countries, India signed an agreement with the UAE to store 30 million crude oil in India’s Strategic Petroleum Reserve. The government’s response since the last escalation has been swift. Refineries have been directed to maximize LPG production to meet rising domestic demand, especially given the dramatic expansion of access to cooking gas under the Ujjwala scheme. LPG connections in India have increased from roughly 14.5 crore in 2014 to over 33 crore today, fundamentally changing household energy consumption patterns. Gas allocation for households, public transport networks and fertilizer plants was prioritized to avoid cascading disruptions in essential sectors. It was reported that domestic LPG production increased by approximately 50% during the peak of the crisis response, and all 25 fertilizer plants continued to receive approximately 70% of gas requirements to maintain agricultural supply chains. Naval deployments in the Gulf of Oman, diplomatic relations with multiple countries and efforts to secure alternative shipping arrangements underscore how seriously India is treating the crisis. These measures bought the country valuable time. But they also faced a very high cost.
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Pressures on oil companies
India’s state-run Oil Marketing Companies (OMCs) are currently operating under tremendous financial stress, selling fuel below market-related costs to protect consumers from inflationary shocks. Mr. Puri recently noted that lackluster recoveries could increase sharply if high crude oil prices persist; some estimates put daily losses around ₹700 crore-₹800 crore during the peak volatility. The government has already reduced consumption taxes and imposed temporary export restrictions on refined fuels to keep supplies in the domestic market.
This strategy may be politically prudent in the short term, but is economically difficult to sustain in the long term. Energy subsidies on this scale ultimately strain public finances, weaken oil companies’ balance sheets, and distort market signals that encourage efficient energy consumption.
The bigger challenge is that India’s fragility is structural, not temporary. Nearly every major sector of the economy (transportation, logistics, aviation, manufacturing, agriculture and fertilizer) remains heavily dependent on imported fossil fuels. Even if India manages to avoid immediate shortages, it cannot remain permanently insulated from a prolonged global energy shock.
There are already signs that the government is recognizing this reality. Prime Minister Narendra Modi’s calls for responsible energy use, including reducing unnecessary travel, saving fuel and encouraging remote working where appropriate, reflect that the administration is preparing the public for a prolonged period of uncertainty. Such messages would have seemed extraordinary just a few years ago. Today he seems pragmatic. There is a strong argument for calibrated correction. India has managed inflation relatively effectively over the last decade compared to many major economies, creating some room for a measured increase in oil prices without triggering hyperinflation. Consumer Price Index inflation has remained relatively moderate in early 2026 (around 3.2% to 3.5% in the first four months of the year), suggesting that limited price rationalization may still be economically manageable. Gradual reflection of global energy costs will reduce the financial burden on the state, stabilize oil marketing companies and encourage more responsible consumption patterns.
For now, India has demonstrated remarkable agility in dealing with one of the most severe energy shortages in modern history. Supplies remain stable, panic is averted, and the government has managed to protect ordinary citizens from the worst immediate consequences.
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The realities of the new energy age
However, energy shocks of this scale eventually require economic realism. The true cost of fuel cannot be postponed indefinitely. India’s problem is no longer just surviving the crisis; It prepares the public and the economy for a world where energy security will remain fragile, controversial and highly political for years to come.
Recent reports show that Indian refiners continue to aggressively diversify their sourcing even as global analysts warn that prolonged disruption of Hormuz could widen India’s fiscal deficit and weaken the rupee. This should serve as a reminder that this is not a temporary headline cycle. This marks the beginning of a new energy era in which resilience, diversity and conservation will be as important as diplomacy itself. The government increased the prices of petroleum products several times, cumulatively by about 7%. However, this piecemeal approach neither adequately covers international crude oil prices nor meaningfully reduces the burden on OMCs. Reports suggest that OMCs continue to incur losses of ₹ 700 crore to ₹ 800 crore per day and only an additional increase of 13% beyond the current 7% will eliminate these losses. It was also reported that the government began to adjust fuel prices in parallel with the fluctuations in international crude oil prices. But frequent revisions create uncertainty for consumers trying to manage household and business budgets. Instead of gradual increases, the government should impose a one-time 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 ensure that prices remain stable until there is a significant change in global crude oil prices.
Thiruvannathapuram S. Ramakrishnan is a public policy expert
It was published – 27 May 2026 12:56 IST
