India's Oil Contingency Plan Amid US-Iran Turmoil and Hormuz Disruptions

India is proactively developing a robust oil contingency plan in response to heightened geopolitical tensions between the United States and Iran, which have significantly impacted global oil markets and raised concerns about the critical Strait of Hormuz. The current unrest, marked by reported US-Israeli military strikes against Iran and retaliatory actions, including temporary restrictions or threats to shipping in the Strait, necessitates immediate and strategic measures for India, a major oil importer. The comprehensive plan being discussed by government and industry stakeholders involves several critical components. Firstly, India is considering imposing limits on the export of petrol and diesel to ensure sufficient domestic availability in an emergency scenario. India currently exports a significant portion of its refined petroleum products, including about one-third of its petrol, a quarter of its diesel, and roughly half of its aviation turbine fuel (ATF) output. By curbing these exports, the government aims to channel more fuel towards local consumption, thereby bolstering national supply. Refiners could also redirect surplus ATF into other product streams if necessary. Secondly, the plan includes increasing crude oil imports from Russia. While India had recently diversified its crude oil sourcing, reducing reliance on Russian oil to some extent due to US pressure and trade talks, the escalating crisis in the Middle East has brought Russian crude back into focus as a viable and readily available alternative. Reports indicate that millions of barrels of Russian oil are currently in floating storage in Asian waters, offering a quick procurement option if traditional Gulf supplies are disrupted. This shift highlights India's pragmatic approach to energy security, prioritizing stable supply amidst global uncertainties. Thirdly, and perhaps most significantly for the common citizen, demand-management measures, including the rationing of Liquefied Petroleum Gas (LPG), are under active consideration. This measure would primarily target customers with access to alternative cooking fuels, particularly in rural areas, to ensure the availability of LPG for those most dependent on it. LPG is identified as India's most vulnerable fuel, as the country imports approximately 80-85% of its consumption, with the vast majority originating from Gulf suppliers via the Strait of Hormuz. Unlike crude oil, India does not maintain substantial strategic LPG reserves, making its supply chain highly susceptible to disruptions in this crucial maritime passage. The Strait of Hormuz is a vital maritime corridor, connecting the Persian Gulf to the Arabian Sea, and approximately 20% of the world's seaborne oil trade and a significant portion of LNG and LPG exports pass through it daily. For India, roughly 2.5-2.7 million barrels per day, accounting for nearly half of its crude oil imports and 60% of its LNG imports, transit this strait. Any prolonged disruption in this chokepoint could have severe ramifications for India's energy security and economy, leading to potential price spikes and supply shortages. India's current strategic petroleum reserves (SPR) capacity stands at 5.33 Million Metric Tonnes (MMT) across three locations: Visakhapatnam, Mangaluru, and Padur, providing approximately 9.5 days of crude oil requirement. In addition, Oil Marketing Companies (OMCs) hold storage facilities for crude oil and petroleum products sufficient for 64.5 days, bringing the total national capacity for crude oil and petroleum products to 74 days. However, some industry estimates suggest that combined commercial and strategic stocks, including onshore inventories and cargoes already past Hormuz, might cover less than two weeks if supplies are immediately interrupted. While these reserves offer a buffer against short-term disruptions, the government is continuously exploring options for increasing storage capacity, including through public-private partnerships. The ongoing US-Iran turmoil has already triggered significant volatility in global oil and gas prices. Brent crude prices have surged, with analysts predicting they could reach $80-90 per barrel, and potentially even $120 per barrel in a scenario of severe and prolonged disruption of the Strait of Hormuz. Such price increases would substantially inflate India's import bill and exacerbate inflationary pressures. The Indian government, through the oil ministry, has stated its continuous monitoring of the evolving situation and commitment to taking all necessary steps to ensure the availability and affordability of petroleum products in the country. This contingency planning underscores India's acute awareness of its vulnerability as the world's third-largest oil consumer, importing nearly 90% of its crude oil needs and a substantial portion of its gas. The situation highlights the need for diversified energy sourcing, robust strategic reserves, and agile response mechanisms to safeguard its economy and citizens from the cascading effects of global geopolitical conflicts.

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