Iran war likely to hit India's three-pronged fuel reliance as tensions rise

Timing of the new US-Israel bombing of Iran and Tehran's response couldn't be worse for India

Plotting the course of war is not easy. Russia invaded Ukraine,  planning to subdue it in a month — four years on, the fighting rages on. Former US President George Bush invaded Iraq as a “shock and awe’’ exercise to unseat Saddam Hussein. It led to a decade of chaos and violence, giving birth to the fundamentalist terrorist group,  the Islamic State of Iraq and Syria (ISIS), which,  at one time,  ruled over Iraq’s second-largest city, Mosul. So, the outcome of 90 million Iranians taking over the regime — if at all it happens — is unclear. 

As West Asia goes up in flames, it is worth examining why and by how much India has hitched its energy security to the region and what options the country has in the event of a prolonged conflict. 

Imports of crude oil were the second-highest ever at 5.22 million barrels per day in February, with Russia’s share at just 20 per cent and West Asia surging to 51 per cent, ship tracking data showed. In March 2025, Russia’s share was 36 per cent (during record imports) and Gulf nations’ 38 per cent, maritime agency Kpler data showed. 

Meanwhile, domestic fuel use is surging, with petrol growing by 6 per cent, liquefied petroleum gas (LPG) by 8 per cent, and diesel by 3 per cent in the April-January period from a year earlier, according to the oil ministry. 

Fuels shipped mainly via the Suez in Egypt, which were at $44.4 billion in FY25, or 10 per cent of India’s exports, have been diverted for the last two years because of attacks by Iran-backed Houthi rebels on tankers, and the fresh hostilities may further constrain Indian exports. 

“We are prepared and continuously look out for suitable sources but will have to brace for supply and price challenges in the short term,’’ G Krishnakumar, former chairman, Bharat Petroleum, told Business Standard. 

Crude oil dependency is just the beginning and perhaps the easiest to tackle, said Kpler analyst Sumit Ritolia. That’s just one prong of the country’s three-pronged reliance. The second involves natural gas, half of which comes from overseas in the form of liquefied natural gas, or LNG, predominantly from the Gulf. The third,  or the central, prong is LPG, nearly all of which comes from West Asia, which is used for cooking by most Indian households in urban centres. 

This, in a nutshell, is the extent of India’s reliance on foreign fuels: 90 per cent for crude oil, over 66 per cent for LPG,  and over 50 per cent for LNG, according to oil ministry data. 

The chokepoint 

While the attack on Iran carries the potential for a wider war, Iran was yet to block the Strait of Hormuz at the time of publication. 

“If flows through the Strait of Hormuz have to be temporarily suspended for safety reasons, it will be problematic, though perhaps manageable for India with the cushion of commercial stockpiles,’’ said Vandana Hari, a leading Singapore-based oil analyst. “ If the shipments are blocked for a protracted period, it would become a graver emergency.’’ 

In FY25, about 50 per cent of India’s crude oil and 54 per cent of LNG imports were routed through this narrow chokepoint. 

“As Iran and West Asian energy producers straddle the Strait of Hormuz, a prolonged and/or widening conflict involving several oil and gas producers could adversely impact global crude oil and LNG supplies,’’ said Prashant Vasisht, senior vice president at ratings agency Icra. “Additionally, any attack on oil and gas production facilities of other major West Asian producers would further aggravate the situation.’’ Iran has already begun bombing oil facilities in eastern Saudi Arabia, officials in Riyadh said. 

The war that began on February 28 has already stalled most shipping through the Strait of Hormuz, according to ship tracking companies and Iran’s state Tasnim news agency. As many as 55 oil tankers remain in Iranian waters — 18 filled with crude and 37 sitting empty, according to TankerTrackers.com. 

The US Maritime Administration advised vessels to avoid the strait, and Iran’s Revolutionary Guards said that the passage was unsafe for commercial traffic, Tasnim reported, according to the New York Times. 

Kpler’s ship-tracking platform MarineTraffic showed a 70 per cent drop in vessel traffic through the Strait of Hormuz, as of late evening on Sunday in Iran, with many vessels reversing course, heading to new routes or idling in the Gulf of Oman. 

The options 

Until early 2025, Indian refiners, both state and private, were on cruise control—around 37 per cent of discounted supplies of Russian crude oil was flowing to India, around 45 per cent came from West Asia, and the rest from nations in North and South America. Then began Trump’s tariff war, which shaved off 36 per cent of Russian supplies in February to 1.1 million barrels per day (bpd), according to shipping data. 

If Gulf supplies are disrupted but Russian exports continue (even with longer routes around Africa, increased freight and insurance), India can continue to receive supplies as Russian ports do not depend on Hormuz, said Krishnakumar. “Even if Suez faces issues, cargo can still move via the Cape of Good Hope (in southern Africa). Indian refiners are already configured to process Urals and ESPO (Eastern Siberia–Pacific Ocean, a pipeline) blends.’’ 

Payment and insurance channels were established post-US sanctions, a senior refining official said. 

Ritolia said the floating storage of Russian oil around the Arabian Sea is around 20-24 million barrels, available at a week’s notice; another 10 million barrels are in the Sea of Japan, 8 million barrels in the Singapore Strait, and 4 million barrels in the Central Indian Ocean. 

While floating storage is plentiful, India’s domestic storage options for crude oil, LNG and LPG are limited at best when compared with the scale of demand. 

The trickiest part is LPG, a politically sensitive fuel, as storage is limited to just around 1 million tonnes or 10 days of LPG storage capacity. There is no data on how much is stored. That compares with 33 million tonnes consumed in 2025, with over 85 per cent used in kitchens. Imports totalled 23.3 million tonnes, of which 93 per cent came from West Asia — a 5-7 day voyage. 

Of the 25 million tonnes in LNG imports in 2025, around 67 per cent came from West Asia, Kpler data showed. There is no underground or tank storage available for gas, as in the case of China or other developed nations. Tanks available at LNG import terminals are limited in capacity and operational in nature, a senior official from a state refiner said, which must be kept partly full at all times for the terminal to function. 

While New Delhi grapples with options, prices of crude oil, LPG and LNG are surging. “The inevitable spike in crude prices coming on top of the already red-hot tanker rates will pinch,” Hari said.