The ongoing Iran-Israel-US War, now in its third month, has severely impacted the global energy market. The strategic decision of Iran to leverage its geographical location to block the Strait of Hormuz has crippled international energy supplies.
Twenty-five per cent of the world’s crude oil, 29 per cent of LPG (commonly known as cooking gas) and 19 per cent of LNG (generally used in industrial processes) pass through this narrow point as per the International Energy Agency.
The recent past has been very volatile, with a new theatre of war emerging every few years at different locations. The Russia-Ukraine war impacted energy supplies worldwide, especially the European market. India mitigated some of this impact by increasing discounted crude imports from Russia, helping stabilise the energy prices.
Other recent conflicts, such as the Thailand-Cambodia conflict and the possibility of conflict in the South China Sea, could lead to a disruption in the supply chain.
There are various sectors in which India needs to push for resilience in the supply chain, including critical minerals, chips and energy. Being one of the fastest-growing large economies, India naturally needs a high volume of consistent energy supplies for its growth.
Although it is important to highlight here that, as per information shared during the inter-ministerial briefing on the conflict in West Asia, there is no shortage of petrol or diesel in India, which is also reflected in ground reality. And we have already diversified our import of crude oil, largely by importing crude oil from Russia at concessional prices and becoming a net exporter of refined petroleum products. As far as LPG is concerned, the diplomatic understanding ensures the safe passage to Indian vessels through the Strait of Hormuz. India has already initiated imports from other sources, but the time and cost will be a constraint.
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Reducing external dependence
But the larger question remains: Can India afford the disruption in its energy supplies and associated vulnerabilities? The possible energy supply disruption might hamper its industrial sector as well as the agriculture and service sectors. The answer lies not only in diversification of import sources but also in reducing external dependence. The risk associated with energy supply is not the only issue. The cost, paid in dollars, has also been a matter of concern.
As per available data, India imports approximately 243.2 MMT (Million Metric Tonnes) of crude oil, which amounts to bills of $137.2 billion annually in energy imports for 2024-25. This directly burdens the foreign exchange reserve.
External energy dependence can be minimised through reduced energy demand (through greater energy efficiency and without compromising economic activities) and greater domestic production. Domestic production doesn’t necessarily mean more exploration and drilling, nor should reduced demand have an impact on domestic economic activity. These challenges should motivate India toward energy efficiency and renewable energy sources. Currently, the three largest energy consumption sectors in India, are industry, households and transport. The transport sector almost solely consumes petroleum products. The other two are largely dependent on energy from fossil fuels (coal), a large share of which comes from imports due to the quality of coal required for power plants. The expected imports of oil and gas are also projected to increase in future based on projected GDP growth.
Under its renewed National Determined Commitment (NDC) for the period of 2031-35, India commits to reducing the Emissions Intensity of its GDP by 47 per cent by 2035 from the 2005 level. This is aligned with India’s 2070 net-zero target.
India is already making an effort toward clean energy production—we already have 267 GW of non-fossil fuel-based installed electricity capacity, and 152 GW was in the pipeline in the year 2023-24, which is increasing at a steady rate.
India’s commitments in terms of reducing energy intensity can lead to improved energy efficiency, but this doesn’t mean that energy demand will reduce. Rapid growth will eventually increase energy consumption.
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Reframing clean energy
India’s clean energy push has largely been framed as a climate obligation. It is time to reframe it as an economic necessity—a tool to reduce our dependence on imported energy. This might not only reduce our import bill in dollars but also reduce the risk for the economy.
In the past decade, the government has also pushed electric vehicles. The government, under FAME-I (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles, 2015-19), FAME -II (2019-24), EMPS (Electric Mobility Promotion Scheme) and PM E-Drive schemes, incentivised the manufacturing and adoption of EVs. This will help shift India’s transport energy demand from conventional fuels to electricity while reducing vehicular tailpipe emissions. If these initiatives bear fruit, it will directly lead to reduced crude oil consumption in the transport sector.
Under this approach, the government also promoted energy efficiency in energy-intensive industries through PAT scheme-based carbon trading in the form of Energy Savings Certificates. In 2022, the government also pushed for India’s own carbon market, where, through compliance, a few sectors will be pushed toward greater energy efficiency. Meanwhile, the voluntary carbon market pushes for energy efficiency in value chains of industries not covered under the compliance mechanism via Business Responsibility and Sustainability Reporting guidelines. These BRSR guidelines are aligned with Environmental, Social, and Governance principles.
The results of all this are still to be felt in terms of energy import data, but these are strong steps in the right direction. Now it’s time to make these steps larger and bolder, with a sense of urgency. These efforts should also be aligned with the strategic purpose of de-risking India’s economic growth and energy supply chain from external factors as much as possible. The government should, in the near future, further push for renewable energy production, EV manufacturing, energy-efficient industries and buildings (green buildings) through incentives, subsidies and compliance without compromising economic activities. These efforts are geared toward strategic purposes, not just a collective responsibility against climate change.
Shaurya Doval is Director, Pahle India Foundation and Member, Governing Council, India Foundation. Akshay Nayak is a Doctoral Research Fellow at IIT Roorkee. Views are personal.
(Edited by Theres Sudeep)