| PYQ Relevance[UPSC 2017] The question of India’s Energy Security constitutes the most important part of India’s economic progress. Analyse India’s energy policy cooperation with West Asian countries Linkage: The PYQ directly examines the linkage between India’s energy security, economic growth and energy cooperation with West Asian countries. The article shows how sustained diplomatic engagement with West Asian partners, diversification of energy suppliers and strategic preparedness enabled India to maintain energy supplies and limit the economic impact of the West Asia crisis. |
Mentor’s Comment
India’s fuel and LPG prices rose only marginally during the recent West Asia crisis even though the country imports nearly 90% of its crude oil through routes exposed to the Strait of Hormuz. This price resilience concealed a ₹74,781 crore loss absorbed by state-run Oil Marketing Companies, exposing the fiscal cost hidden behind India’s energy security architecture.
Why did India appear structurally vulnerable to the West Asia energy shock?
- Import dependence: India imports almost 90% of its crude oil and is heavily dependent on the Gulf for oil, gas, and fertilizers.
- Third-largest oil importer: India ranks as the world’s third-largest oil importer, making it directly exposed to any disruption at the Strait of Hormuz.
- Historical precedent of instability: Sharp oil price increases have historically been a major source of macroeconomic instability for India, as seen in the 1973 oil shock and the 1991 balance-of-payments crisis.
- Sharp initial price signals: The Indian crude basket crossed $120 per barrel within weeks of the crisis. The import-linked cost of a domestic LPG cylinder rose above ₹1,600. War-risk premiums on shipping escalated sharply.
- Compounding risk factors: Rising freight costs and maritime risk combined with crude dependence to create the conditions for a severe external shock.
How resilient was India’s fuel pricing compared to global peers?
- Petrol price comparison: Petrol prices in India rose by only 7.5% during the crisis. Germany saw a rise of nearly 14%, the U.K. 19%, the U.S. 45%, Pakistan and the Philippines over 50%, and Myanmar almost 90%.
- Diesel price comparison: India limited diesel price increases to just 8%. The UAE, a crude-producing country, saw diesel prices surge by about 85%.
- LPG affordability: A domestic LPG cylinder in India cost ₹942, and ₹642 for Ujjwala beneficiaries, despite India importing nearly 60% of its LPG requirement.
- Regional LPG comparison: India’s LPG price remained cheaper than in Pakistan, Nepal, and Sri Lanka, and dramatically lower than in the U.S., Australia, and Canada.
Did India’s price stability represent genuine resilience or a deferred fiscal cost?
- Scale of losses: State-run Oil Marketing Companies incurred ₹74,781 crore in losses on petrol, diesel, and LPG sales up to June 30 as global crude prices surged.
- Absorption over pass-through: The government and public-sector OMCs chose to absorb the price shock rather than pass it fully to consumers.
- Trade-off exposed: Consumer price stability was protected at the direct cost of OMC balance sheets, converting a market shock into a fiscal one.
- Limits of the model: This absorption capacity depends on OMC financial health and government fiscal space. A prolonged or repeated shock would test the sustainability of this approach.
What structural preparations enabled India to absorb the shock?
- Diplomatic relationships as energy security: Decades of engagement with Iran and Gulf partners kept communication channels open during peak tensions. Iran facilitated the movement of Indian ships and Gulf producers continued energy supplies.
- Supplier diversification: Energy partnerships with Russia, the U.S., Africa, and Latin America gave India flexibility to withstand disruption that was unavailable in earlier crises.
- A decade of energy planning: Higher ethanol blending, an expanding renewable energy base, larger strategic reserves, and stronger refining capacity built layered resilience over time.
- Whole-of-government coordination: The Ministries of External Affairs, Petroleum and Natural Gas, and Ports, Shipping and Waterways, along with the Indian Navy and the National Security Council Secretariat, coordinated to monitor risk, manage logistics, and protect supply.
What does this episode signal for India’s future energy security strategy?
- Preparation precedes crisis: Resilience was the product of choices made years before the crisis, not of measures adopted during it.
- Foreign policy as an energy security tool: Diplomatic outreach functioned as a substitute for physical reserves during the acute phase of the crisis.
- Unresolved fiscal question: The crisis did not resolve the tension between consumer price protection and OMC financial sustainability. It only deferred that cost.
- Framing for national strategy: The episode is positioned as a template for future energy resilience under the government’s ‘Viksit Bharat’ framing.
Conclusion
India’s resilience during the West Asia crisis was not accidental. It was the outcome of a decade of supplier diversification, sustained diplomatic engagement with Iran and Gulf producers, strategic reserve-building, and whole-of-government coordination. This resilience, however, was purchased through a ₹74,781 crore fiscal absorption by public-sector Oil Marketing Companies rather than a costless outcome. The crisis therefore validates India’s energy security architecture while leaving open the question of how long consumer price insulation can be sustained through OMC losses if shocks recur or persist.



