How India dodged the worst of the Hormuz energy shock. The fuel crisis that never arrived

A four-month closure of the Strait of Hormuz should have left India dangerously exposed. Instead, it became a stress test the country had spent a decade quietly preparing to pass.

An oil tanker train moves near a railway station on the outskirts of Ahmedabad. Reuters file/Amit Dave

Every so often, a crisis arrives that does not merely test resilience but redefines it. The prolonged disruption in the Strait of Hormuz was one such moment, and among the most significant stress tests for global energy security in years. The strait carries around a quarter of the world’s seaborne crude and petroleum products and about a fifth of global LNG trade. As tensions escalated, markets reacted at once: Brent crossed US$120 a barrel, war-risk premiums and tanker freight rates spiked, and energy-importing governments braced for shortages, inflation, and slower growth.

For India, dependent on imports for nearly 88 per cent of its crude, 51 per cent of its natural gas, and around 60 per cent of its LPG, the risk looked acute. Conventional assessments would have placed it among the most exposed economies, facing supply shocks, inflationary pressure, and economic dislocation. Yet the energy crisis everyone expected never fully arrived.

Through months of unprecedented volatility, India avoided fuel shortages, managed pressure on LPG supplies, and moderated the impact of rising global prices on consumers. It did so by combining swift policy interventions, coordinated institutional action, and active energy diplomacy to hold both supply security and market confidence.

 

Preparedness, not luck

What set India’s response apart was not the speed of its interventions alone, but the depth of the preparation beneath them. A decade of sustained investment in refining infrastructure, supply diversification, and institutional readiness meant the system had slack to draw on.

A large and flexible refining base, backed by strategic petroleum reserves and an increasingly diversified crude-sourcing network, kept supply flowing even as traditional Gulf routes were disrupted. Targeted policy action kept domestic fuel availability insulated, while decisive consumer-protection measures stopped the global price shock from cascading into broader instability.

Every geopolitical disruption presents governments with a choice: restore normalcy and return to business as usual or use the crisis to build greater resilience for the future. India’s response suggests it chose the latter, an illustration of the philosophy of “Aapda Mein Avsar,” where effective crisis management not only mitigates immediate risk but also creates momentum for long-term structural transformation.

A multi-pronged response

The response framework prioritised three things: securing supply, protecting consumers, and sustaining market confidence.

The first priority was physical availability. Within days, an LPG Control Order allowed refineries to divert propane and butane streams towards domestic LPG production; indigenous output rose from roughly 35,000-36,000 tonnes/day to 54,000 tonnes/day within a week of the conflict, sharply reducing import dependence at the peak of the crisis. Crude procurement was spread across India’s expanding supplier network, while strategic reserves of 5.33 million tonnes, planned expansions at Chandikhol and Padur, and an annual refining capacity of 256.8 million tonnes gave the country significant operational flexibility.

The second priority was shielding consumers from the price surge. With Brent past US$120, the government cut central excise on petrol and diesel by Rs 10 a litre, absorbing an estimated annualised revenue impact of up to Rs 1.7 lakh crore, while public-sector oil marketing companies took on under-recoveries that peaked at almost Rs 1,000 crore a day.

The result was striking: during the initial shock between late February and early May, petrol in the UK rose by about 19 per cent and diesel in the UAE by over 85 per cent. India, by contrast, held retail fuel prices steady before later increases of about 8 per cent.

Household energy drew particular focus. The import-linked cost of a 14.2 kg LPG cylinder crossed Rs 1,600, yet the retail price for domestic consumers was held at Rs 942,  protecting access to clean cooking fuel for over 33 crore households. In effect, supply was strengthened before shortages emerged, consumers were protected before shocks reached homes, and markets were reassured before uncertainty turned to panic.

From crisis to catalyst

While the immediate response prevented a crisis, the more enduring impact lies in the momentum it generated. The disruption reinforced a critical insight: energy security can no longer be viewed through the lens of import dependence alone; it must be embedded within a broader framework of resilience, diversification and sustainability.

One pillar is strengthening domestic exploration and production. With India importing nearly 88 per cent of its crude, every additional barrel produced at home is strategically valuable. Samudra Manthan, an offshore exploration push, aims to unlock the country’s deep-water and frontier-basin potential through advanced seismic acquisition and accelerated monetisation. It is complemented by ONGC’s Technical Services agreement with bp for the Western Offshore fields, which brings enhanced recovery technology to mature reservoirs, and by renewed exploration in the Andaman offshore.

A second pillar is diversifying the energy basket itself. India’s 20 per cent ethanol-blending milestone, achieved five years ahead of schedule, has helped reduce dependence on imported crude oil and saved an estimated Rs 1.36 lakh crore in foreign exchange. Building on it, the SATAT initiative is scaling compressed biogas from agricultural residue and municipal waste, while the National Green Hydrogen Mission and a growing focus on sustainable aviation fuel are opening future-ready pathways to decarbonise industry and aviation.

Supply has broadened too over the past decade: the crude basket has expanded from 27 to 41 supplier countries, including countries such as Guyana, Gabon, and Equatorial Guinea, while city gas distribution has grown from 55 geographical areas in 2014 to more than 300.

Through it all, the macro picture held. Foreign-exchange reserves stood over US$700 billion as the conflict began and remained robust thereafter, while growth stayed resilient at around 7.7 per cent. The disruption did more than validate India’s crisis management; it reaffirmed the strategic direction of its energy policy.

 

The real legacy

The disruption in the Strait of Hormuz will eventually become another chapter in a long history of geopolitical crises. Its more enduring legacy may lie in the lesson it offers economies navigating an uncertain energy landscape: geography cannot be changed, but vulnerability can be reduced through sustained reform, strategic investment and timely decisions.

The task now is to sustain the momentum, with deeper exploration and production, a faster energy transition, more resilient infrastructure, and tighter coordination across the energy value chain.

In retrospect, the Hormuz disruption may be remembered not only as a challenge India navigated, but also as an event that tested the direction of its energy security strategy. Resilience is not built in the moment of crisis; it is shaped through decisions taken in the years preceding it. Handled with foresight, a chokepoint need not remain a vulnerability. It can become a catalyst.

Vivek Rahi is a Partner and the National Head, Oil & Gas, at KPMG in India. Views are personal.

(Edited by Asavari Singh)