The 2026 Gulf conflict was one of the most severe external economic shocks that India had experienced in recent years. The geopolitical tensions in West Asia and the threats to the Strait of Hormuz posed a significant risk of disruption to India’s crude oil, LNG, LPG, fertiliser, and petrochemical supplies. The vulnerability was significant because India imports almost 88% of its crude oil needs, over 50% of its LNG needs and almost 60% of its LPG consumption. Energy imports were already one of the biggest macroeconomic risks in India, with the annual crude oil import bill surpassing $130-140 billion. Policymakers were concerned that a prolonged disruption would lead to a sharp rise in inflation, rupee depreciation, current account deficit, manufacturing slowdown and food security issues due to fertiliser shortages. The government responded with a multi-layered economic stabilisation framework, which included emergency supply management and long-term structural measures to lessen import reliance and enhance strategic resilience.<\/p>\n\n\n\n
The government’s first major step was the declaration of emergency powers under the \u201cNatural Gas (Supply Regulation) Order, 2026\u201d in the context of the Essential Commodities. India is using approximately 190-200 MMSCMD of natural gas, but only about 50% of the demand is being met by domestic production, with the remaining 50% being imported from Qatar, Oman and the UAE as LNG. In the conflict, concerns arose about the potential for delays or disruptions to LNG cargoes transiting the Strait of Hormuz. The government implemented a centralised gas allocation mechanism, which prioritised fertiliser plants, LPG production, PNG households, and CNG transportation networks, to avoid widespread shortages. Fertiliser plants account for almost one-third of India’s gas consumption, and the government was worried that any disruption would have a direct impact on agricultural production and food inflation. Industrial and commercial users were therefore ranked lower in the allocation hierarchy to ensure supply to critical sectors. This essentially established a wartime-type energy allocation system designed to ensure economic and social stability.<\/p>\n\n\n\n
At the same time, the government took a strong step to ensure the stability of LPG supplies, as almost 60% of India’s LPG consumption is met through imports. India is using about 29-30 million metric tonnes of LPG per year, while it produces only about 13-14 MMT of LPG per year. Public-sector refiners were instructed to run their refineries at maximum capacity, some of them running at over 95%, and some of the petrochemical feedstocks were diverted to LPG production. During the peak stabilisation phase, domestic LPG production is reportedly rising from nearly 36,000 MT\/day to around 54,000 MT\/day. State governments tightened norms on booking refills, improved monitoring at the distributor level and initiated anti-hoarding operations to curb panic buying. These measures were especially significant as India’s LPG ecosystem caters to over 330 million households, of which over 100 million are covered under the PM Ujjwala Yojana. Cooking gas stability was seen not only as an energy problem but also as an important component of inflation management and stability of household consumption by policymakers.<\/p>\n\n\n\n
Fuel taxation at the macroeconomic level became one of the most important stabilisation tools for the government. During the conflict, global crude prices rose above $100 per barrel, and India lowered excise duties on petrol and diesel to avoid imported inflation from wreaking havoc on the economy. Diesel is especially important because it is used in almost 70% of freight transport in India and a significant amount of agriculture, mining, construction and industrial logistics. If there had been no intervention, retail fuel prices could have risen by \u20b915\u201320 per litre, which would have significantly pushed up transportation costs and food inflation. The government thus took some of the external oil shock on board in terms of fiscal sacrifice. During some periods, excise duties on petrol were lowered considerably, and those on diesel were made almost negligible. Export duties and windfall taxes were also adjusted dynamically to ensure the security of domestic supply and the profitability of the refinery. This flexible taxation policy helped to keep inflation expectations low and to safeguard overall economic activity.<\/p>\n\n\n\n
During the conflict, India also rushed to expand its Strategic Petroleum Reserve (SPR) system. The existing underground storage caverns at Visakhapatnam, Mangaluru and Padur have a total capacity of 5.33 million metric tonnes, which is equivalent to about 9-10 days of crude demand cover. But policymakers knew that this was not enough when compared to the IEA’s 90-day reserve standard. Consequently, the Phase-II reserve projects in Odisha (Chandikhol) and Karnataka (Padur Phase-II) were fast-tracked, bringing an additional 6.5 MMT of planned capacity. The FY26 budget provided around \u20b95,597 crores for strategic oil procurement and further funds for the construction and maintenance of the reserves. The government started to view strategic reserves as not just energy infrastructure, but macroeconomic insurance that could help to ease panic buying, stabilise refinery operations and cushion the inflationary blow of crude price increases.<\/p>\n\n\n\n
The war highlighted the importance of diversifying India’s crude imports from over-reliance on the Gulf. Before the Russia\u2013Ukraine war, Russian crude made up less than 2% of India’s oil imports. In several months, Russian crude accounted for almost 35-40% of India’s import basket in FY26 due to significant price discounts. India also increased purchases from non-Gulf suppliers such as the United States, Brazil, Nigeria, and Guyana. This diversification helped to lower concentration risk, enhance India’s negotiating leverage in global energy markets, and lessen the impact of disruptions in the Strait of Hormuz. Policymakers increasingly highlighted procurement flexibility and geographic diversification as key elements of energy security.<\/p>\n\n\n\n
The proposed Oman\u2013India subsea gas pipeline project was one of the most strategically significant projects that gained momentum following the conflict. The crisis highlighted the vulnerability of LNG shipping through the Hormuz, leading India to resurrect its plans for a direct deep-sea gas pipeline from Oman to Porbandar in Gujarat. The proposed project is estimated to be about $4.7-4.8 billion and will be about 1600-2000 km long and will be laid at depths of more than 3000 meters under the Arabian Sea. Feasibility and engineering studies were assigned to government agencies such as GAIL, Indian Oil Corporation and Engineers India Limited. India hopes the project will offer long-term gas security, avoid maritime chokepoints, help stabilise industrial gas supplies and help the government achieve its long-term goal of increasing the share of natural gas in the energy mix from about 6% to 15%.<\/p>\n\n\n\n
The government also moved forward with the \u201cOne Nation, One Gas Grid\u201d initiative to enhance the efficiency of energy distribution. India’s operational gas pipeline network has reached 25,000 km, with key pipelines like Jagdishpur\u2013Haldia\u2013Bokaro\u2013Dhamra Pipeline, Kochi\u2013Mangalore Pipeline, North-East Gas Grid, and Kandla\u2013Gorakhpur Pipeline becoming more strategically significant. The purpose of introducing unified gas tariffs was to eliminate the difference in transportation costs between coastal and inland areas. The government hopes that increased gas connectivity will help to lessen reliance on diesel and furnace oil, enhance city gas penetration, and boost long-term energy efficiency and competitiveness of industries.<\/p>\n\n\n\n
The Gulf War also highlighted India’s dependence on shipping disruptions and tanker risks in the Strait of Hormuz. The government, in turn, stepped up the coordination of maritime security under the umbrella of \u201cOperation Sankalp\u201d. The scope of naval surveillance, monitoring of tankers, vessel-tracking systems and shipping-risk coordination was greatly increased. The Ministry of Ports, Shipping and Waterways and the Ministry of External Affairs were among the ministries that coordinated closely following the multiple Indian linked vessels getting stranded near the Gulf region. These measures were a result of the increasing awareness in the government that energy security cannot be separated from maritime security infrastructure.<\/p>\n\n\n\n
The other significant but less talked about aspect of the government’s response was the issuance of general national economic-conservation advisories to curb fuel consumption and save foreign exchange. The Prime Minister and several ministries promoted work-from-home, virtual meetings, more public transport, car pooling, less unnecessary foreign travel, less edible-oil wastage, and quicker EV adoption. These were not legal restrictions but national demand management measures to bring down aggregate fuel consumption and ease the pressure on the import bill in the height of the crisis.<\/p>\n\n\n\n
The most significant long-term structural reform that gained momentum during the crisis was India’s ethanol blending programme. India is using more than 40 billion litres of petrol per year, and the government’s 20% blending target is effectively substituting for about 8 billion litres of petrol demand each year. The ethanol blending has increased from 1.5% in 2014 to almost 20% by FY26. The government estimates that the programme has already replaced about 260 lakhs metric tonnes of crude oil and saved foreign exchange worth more than \u20b91.55 lakh crore. The government implemented guaranteed procurement contracts, incentives for ethanol production using grain, interest-subvention schemes, and support for ethanol production using maize. The FCI’s rice stocks were also diverted to ethanol production. Ethanol blending is now seen by policymakers as a policy that can not only be environmentally friendly, but also a macroeconomic reform that can permanently decrease crude-import reliance.<\/p>\n\n\n\n
The government also increased incentives for compressed biogas (CBG) under the SATAT scheme, along with ethanol blending. To boost the economics of domestic biofuel production, the FY27 budget framework offered excise-duty exemptions for CBG blended with CNG. The government hopes that CBG expansion will help to decrease LNG consumption, boost rural energy systems, enhance the utilisation of agricultural waste, and promote cleaner transportation fuels. Biofuels are increasingly recognised as a key component of long-term import substitution in the energy sector by policymakers.<\/p>\n\n\n\n
The war also pushed India’s EV and battery localisation agenda further, as transportation consumes about half of India’s petroleum consumption. The government increased EV charging infrastructure, battery manufacturing incentives, and advanced chemistry cell (ACC) PLI schemes, with almost \u20b918,100 crore being allocated for battery manufacturing support. But the policymakers also noted that India is still highly reliant on imported lithium-ion cells and critical minerals like lithium, cobalt, nickel and graphite. Consequently, India increased customs duty exemptions, foreign mineral partnerships, processing incentives, and critical mineral localisation policies to prevent technology-import dependence as an alternative to oil dependence.<\/p>\n\n\n\n
The Ministry of Petroleum and Natural Gas also accelerated efforts under \u201cMission Anveshan,\u201d which focuses on increasing domestic oil and gas exploration. The long-term goal is to achieve domestic crude production of 100 MMT, domestic gas production of 100 BCM and domestic refining capacity of 450 MMTPA by 2047. The government was increasingly aware that diversification of imports was essential, but that long-term energy security would depend on greater domestic production capacity.<\/p>\n\n\n\n
The other reform area that was gaining strategic momentum following the war was the expansion of nuclear energy. The government started to see nuclear energy as a reliable domestic energy source that could help to lessen reliance on fossil fuels. The policy discussions gained momentum on Small Modular Reactors (SMRs), private sector involvement and scaling up India’s nuclear power capacity from the current level of around 8,180 MW to 22,480 MW by 2031-32. Policymakers understood that renewable energy would not be able to completely substitute for imported fossil fuels without a reliable baseload generation capacity.<\/p>\n\n\n\n
The most important outcome of the Gulf conflict was the transformation of India’s policymaking philosophy. The government no longer sees oil shocks as just fuel-price shocks. Rather, energy, logistics, fertilisers, semiconductors, batteries, critical minerals, shipping routes, and manufacturing ecosystems are becoming more and more viewed as interdependent elements of national economic security. The 2026 Gulf conflict thus hastened India’s shift towards a more resilient and strategically self-reliant economic model that would lessen external vulnerability, build up domestic industrial capacity, and shield the economy from future geopolitical shocks.<\/p>\n","protected":false},"excerpt":{"rendered":"
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