India has shown over the past few years that it can change where it buys oil faster than many expected. Russian crude became a major part of the import basket after the Ukraine war, while refiners widened purchases from the Americas and elsewhere. That flexibility has helped. But the latest Middle East disruption is showing where diversification stops working. Brent is still above $100 a barrel. Saudi Arabia has been seeking alternative ways to move crude to Asian customers after attacks disrupted its East-West pipeline and loadings from Yanbu. That route mattered because it allowed some Saudi crude to bypass the Strait of Hormuz. When even an alternative route is disrupted, the issue is not just where India buys its oil, but whether it can still reach India at a reasonable price.
When diversification reaches its limits Indian refiners have adapted quickly. In July, Mangalore Refinery and Petrochemicals Ltd (MRPL) sought crude that could be delivered without passing through either the Red Sea or the Strait of Hormuz. Days later, two tankers carrying Saudi crude for Indian Oil and MRPL switched off their tracking systems while moving through the Bab el-Mandeb after threats to Saudi shipping. Together they were carrying 1.7 million barrels. Energy security was no longer only about finding another supplier. It had become a question of getting the barrel safely to India. Yet India remains highly exposed. A CEEW assessment of India’s energy security notes that the country imports 88 per cent of its crude and that about 85 per cent of those imports come from only six countries.
Diversification can reduce the damage caused by losing one supplier. It offers much less protection when a wider disruption pushes up benchmark prices, tanker rates, insurance costs and the price of alternative grades. That flexibility is also exposed to policy risk. The US House has passed legislation that would allow tariffs of up to 100 per cent on major buyers of Russian energy, including India, although such tariffs would not be automatic. New Delhi has responded that it will protect India’s trade and energy interests. The exchange points to another limit of diversification: a crude source may remain physically available while the commercial cost of using it is altered by decisions taken well outside the oil market. The pressure has intensified. India’s crude basket rose to about $131 a barrel on September 15, its highest since March. India’s crude import bill also rose 25.8 per cent year on year in August to $16.69 billion. The rupee has been trading close to 96 to the dollar, with high oil prices adding to importer demand for dollars and prompting intervention by the Reserve Bank of India.
A sustained oil shock therefore reaches well beyond petrol and diesel. The government itself has acknowledged the risk. In its July economic review, the Finance Ministry warned that sustained high crude prices could put pressure on both the fiscal deficit and the current account. It can enlarge the import bill, put pressure on the currency and make inflation harder to manage. The recent study traces how the crisis feeds into freight, insurance and other imported costs. India can absorb a short-lived price spike far more easily than months of expensive oil. That is why the duration of this crisis may matter as much as its peak price.
Buying time in a prolonged shock The IEA’s September Oil Market Report shows how quickly global buffers are being used up. It expects world oil supply to fall by 5.7 million barrels a day in 2026, while observed inventories have fallen by 507 million barrels since February. It also expects global oil demand to decline by 2.5 million barrels a day this year. That fall in demand is not necessarily reassuring. It also shows how a prolonged energy shock eventually forces households and businesses to consume less.
For India, the lesson is straightforward. Strategic stocks are valuable because they create breathing space. They give refiners time to secure substitute cargoes, adjust crude grades and avoid buying every replacement barrel when the market is at its most expensive.
India’s dedicated strategic reserves provide only around 9 to 10 days of net import cover, although commercial and operational stocks take the total much higher. With commercial and operational inventories included, the overall cover rises to roughly 74 days. The planned 1.75-million-tonne storage facility at Mangaluru will add capacity, however, a longer crisis requires a wider approach that brings together government reserves, commercial inventories, refinery flexibility and supply contracts.
Policy also needs to look beyond the headline storage number. India should know how quickly emergency stocks can be released, whether the crude grades being stored match refinery requirements, and how effectively supplies can be moved when normal routes are disrupted. A reserve has limited value if the right barrel cannot reach the right refinery when it is needed.
Reducing the economy’s oil exposure
Storage can buy time, but the longer-term challenge is still growing. Looking further ahead, the IEA’s India Oil Market Report projected India’s crude imports rising from 4.6 million barrels a day in 2023 to 5.8 million barrels a day by 2030 as demand grows and domestic production remains limited. India could therefore become more exposed to global oil shocks even while becoming better at managing individual suppliers.
Domestic production and supplier diversification still matter. But India also needs to slow the growth of oil demand itself, particularly in transport. Electric vehicles and efficiency improvements alone could avoid about 480,000 barrels a day of additional oil demand between 2023 and 2030. Rail freight, better public transport, more efficient vehicles and sustainable biofuels can reinforce that shift.
This is where the energy transition can also strengthen energy security. The less oil India needs to import, the less exposed it is when global supplies are disrupted. But India should avoid replacing one dependence with another by becoming too reliant on imported batteries, critical minerals or clean-energy technologies.
The crisis shows that oil security is about more than finding new suppliers. India also needs enough storage and refinery flexibility to cope with disruptions that last for months. In the longer run, the best protection will come from reducing how fast oil imports grow as the economy expands.