25 March 2026, NIICE Commentary 12390
Ankit Singh Narwal
When tensions rise in West Asia, India faces not only higher crude prices but also a rapid shipping and insurance shock. The risk centres on the Strait of Hormuz, a narrow passage through which about 20 million barrels of petroleum liquids moved daily in 2024- around one-fifth of global consumption. According to the U.S. Energy Information Administration, 84% of crude and condensate passing through Hormuz goes to Asian markets, with China, India, Japan and South Korea accounting for nearly 69% of these flows.
When tankers delay or avoid the region, pipelines and alternative routes can only partly compensate. Rerouting through the Red Sea raises freight costs, war-risk insurance and volatility in fuels such as diesel and aviation turbine fuel. With 85- 90% of India’s crude imported, such disruptions quickly spread through the economy- pushing up inflation, straining exchange rates and forcing difficult fiscal choices. A geopolitical shock abroad can therefore rapidly become an economic shock at home.
India’s Strategic Cushion is Thinner than it Looks
India’s energy security debate often centres on a single number: Strategic Petroleum Reserves (SPR) covering about 9.5 days of consumption. While accurate, the figure is misleading in isolation. Phase-I reserves, managed by Indian Strategic Petroleum Reserves Limited, total 5.33 million metric tonnes across Visakhapatnam, Mangaluru and Padur, with about 4.094 MMT currently stored (around 77% of capacity) and part tied to commercial arrangements.
Globally, the benchmark is far higher. The International Energy Agency’s emergency framework requires members to hold oil stocks equal to at least 90 days of net imports, a standard also reflected in India’s Integrated Energy Policy (2006). By comparison, India’s 9.5 days of strategic cover is barely one-ninth of that benchmark.
Other Asian importers maintain much larger buffers. Japan holds about 254 days of reserves and South Korea around 208 days, while China’s expanding stockpiles-roughly 750 million barrels-could exceed 1 billion barrels, covering up to six months of imports.
India’s position improves when operational inventories are included. State oil companies hold crude and petroleum products equal to about 64.5 days of imports, raising total national storage to around 74 days. Even so, India still trails the most prepared Asian economies and remains vulnerable if disruptions persist beyond a few weeks.
The Economy-Wide Pass-Through: Who Pays, and Where
Public debate often treats oil inflation as a petrol pump issue, but its impact runs far deeper. Diesel moves goods, naphtha feeds petrochemicals, LPG supports household cooking, and aviation turbine fuel powers air travel. Even when retail prices are politically managed, costs do not disappear- they shift into supply constraints, hidden subsidies or higher fiscal burdens. In the Consumer Price Index (base 2024), “Fuel and Light” carries a weight of 5.489 (down from 6.843 in the 2012 series), meaning energy shocks directly affect inflation. Research by the Reserve Bank of India suggests that a 10% rise in global crude prices could increase India’s inflation by about 0.20 percentage points.
The larger impact comes through transport and supply chains. About 70% of diesel is used in transport and 99.6% of petrol consumption is transport-linked, while roads carry roughly 71% of India’s freight. Diesel therefore becomes the main transmission channel of inflation, raising food, logistics and manufacturing costs. Agriculture feels the impact through tractors, irrigation and farm transport (Farm to Mandi); aviation through ATF costs that account for 30-40% of airline expenses. Hospitals face higher generator and logistics costs. At the macro level, sustained oil above $90–$95 per barrel could slow growth, with one estimate reducing FY27 growth from above 7% to around 6.5%.
Delivery Partners and the Gig-Economy Squeeze
Oil shocks are regressive-they hit hardest those who must travel to earn. India’s delivery workforce sits at the sharpest edge of that impact. NITI Aayog estimates 7.7 million gig workers in 2020–21, projected to reach 23.5 million by 2029–30, with a large share in delivery services where fuel is the highest variable cost. Major platforms reflect the scale: Zomato reported about 473,000 monthly active delivery partners in FY2024–25, while Swiggy reported over 522,000 delivery partners. Quick-commerce and e-commerce models- such as Zepto and Amazon-style flexible delivery networks- depend on two-wheelers making short trips, where even a small petrol price increase can wipe out earnings for marginal workers.
Headline earnings figures often mask this vulnerability. Zomato has cited average delivery earnings of about ₹102 per hour in 2025, but research by Fairwork India shows that take-home income drops sharply after deducting fuel, maintenance, and other work costs. A prolonged oil shock, therefore, becomes a labour shock: platforms must either raise payouts- pushing up consumer prices- or keep them unchanged, shifting the burden onto workers. In effect, the gig workforce, already marked by high churn and weak bargaining power, becomes an informal shock absorber for the wider economy.
What Governments Can Do During the Crisis Window?
India may be stronger than many neighbours, but “stronger” is not the same as “sufficient.” Policy must move on three fronts. First, deploy strategic reserves carefully and transparently, using them to stabilise markets during disruptions rather than to artificially suppress prices. Second, protect critical fuels and essential services. The government recently invoked emergency powers under the Essential Commodities Act, 1955, to direct refiners to maximise LPG output during supply disruptions. India consumed 33.15 million metric tonnes of LPG last year, importing about two-thirds, with 85–90% coming from the Middle East. With roughly 332 million active LPG consumers, this is as much a household welfare issue as an energy statistic.
Third, use legal tools to deter hoarding and manage distribution if needed. The Essential Commodities Act, 1955 already lists petroleum and petroleum products, allowing the state to regulate supply and trade during emergencies to protect essential transport such as food logistics, medical services, and public transport. India’s experience also shows that controlled pump prices do not remove shocks- they shift them, often onto oil marketing companies and eventually the budget. Fiscal pressure is evident: in October 2022, the government approved a ₹22,000 crore grant to public sector OMCs to offset LPG losses. At the same time, gig workers should be included in crisis responses. Delivery and ride-hailing drivers cannot easily absorb fuel shocks, so temporary support- such as fuel vouchers, per-kilometre compensation, or a National Gig Safety Fund funded partly by large platforms- could act as a short-term stabiliser, protecting workers while keeping essential urban delivery networks running during crises.
Preparing India for the Next Energy Crisis
A durable response requires treating oil security as infrastructure, not an ad-hoc crisis tool. India has approved Phase-II strategic storage of 6.5 MMT at Chandikhol and Padur, but delays in land, financing, and execution remain risks that can turn peace-time bottlenecks into crisis-time vulnerabilities.
Supply diversification is equally vital. India has begun experimenting with shared storage, including an arrangement allowing Abu Dhabi National Oil Company to store about 5.86 million barrels at the Mangaluru SPR, with emergency access provisions. Over time, India must broaden its crude basket- beyond the Middle East to sources in the Americas, West Africa, and Russia where feasible- while upgrading refineries to handle multiple crude grades and improving shipping coordination.
China’s 2026-2030 energy plan shows what systematic preparedness looks like: larger reserves, steady domestic production, and rapid electrification to reduce oil dependence. India’s equivalent path is clear- accelerate electrification of two-wheelers, buses, and urban freight, and gradually shift freight away from diesel-heavy roads, which still carry around 71% of freight traffic. Oil security should be measured transparently- days of reserves, refill rules, and release triggers- so that future crises become tests of preparedness rather than episodes of panic.
Ankit Singh Narwal is a postgraduate scholar at South Asian University, New Delhi, India.
