The Strait of Hormuz crisis has exposed how dangerously dependent India’s economy is on imported energy. With India GDP growth slashed and fuel prices spiraling, the question is no longer whether India has oil it is why it hasn’t drilled for it yet.
The Crisis No One Saw Coming Or Did They?
When the United States and Israel launched strikes on Iran on February 28, 2026, the world’s most critical energy chokepoint went dark almost overnight. The Islamic Revolutionary Guard Corps declared the Strait of Hormuz closed on March 2, and what followed was immediate: cooking gas shortages, surging fuel prices, a weakening rupee, and a stock market rout that rattled millions of Indian households.
This was not a distant geopolitical event. This was a direct hit on India’s economic engine. And in the wreckage of this crisis lies an uncomfortable truth India has been sitting on tens of billions of barrels of untapped oil, and has done too little, too slowly, to bring it to the surface.
Does India Have Oil? More Than Most People Know
The short answer is yes. India holds nearly 5 billion barrels of proven oil reserves as of 2025, ranking 23rd in the world. But proven reserves are only part of the story.
Four largely unexplored sedimentary basins Mahanadi, Andaman Sea, Bengal, and Kerala-Konkan could hold up to 22 billion barrels of oil, according to S&P Global Commodity Insights. These lesser-known Category II and III basins contain more potential oil than the Permian Basin, one of the most productive fields in the United States.
India’s sedimentary basins cover nearly 3.36 million square kilometres, but only a fraction has been explored so far. Domestic crude oil production currently meets only 15–18% of India’s total demand, while the rest comes through imports from West Asia, Russia, and Africa.That gap between what India has underground and what it burns daily is the strategic failure at the heart of this crisis.
India Economy: A Giant With a Glass Jaw
India GDP has been one of the great growth stories of the 21st century. In 2024, GDP in India was approximately $3.91 trillion, and it is expected to reach six trillion dollars by the end of the decade. Growth projections for fiscal 2025–26 had been strong comfortably above 7%.
Then came the Hormuz shock. India’s projected economic growth for fiscal year 2026–27 has been revised down to 6% from a previous estimate of 6.8%, according to Moody’s Ratings. The Middle East conflict could lower India’s real GDP growth by one percentage point, with retail inflation potentially rising by 1.5 percentage points if the war continues into FY27.
The Indian rupee has depreciated to a record low of INR 92.34 against the dollar, compounding inflationary pressures and raising the country’s cost of borrowing.This is what energy dependency looks like when it fails not gradually, but all at once.
The Strait of Hormuz: India’s Achilles Heel
The Strait of Hormuz is a narrow waterway between Iran and Oman, just 56 kilometres wide at its most constricted point. India sources roughly 53% of its oil imports and between 40% and 47% of its LNG imports from the Middle East, giving it direct exposure to any blockade of the strait.
India imports roughly 60% of its LPG consumption, and about 90% of those shipments typically pass through the Strait of Hormuz.When the strait effectively closed, India’s vulnerability was not theoretical it was visible on kitchen stoves across the country, where gas cylinders became scarce.
Brent crude oil prices jumped about 15% in the opening days of the conflict, then surged to $120 a barrel as the market began pricing in the risk of sustained disruption. In a worst-case scenario, some analysts have predicted that prices could reach $150 or more.As of March 11, 2026, the price of the Indian crude basket reached $113.57 per barrel a sharp jump compared with the $62–70 range seen earlier in the fiscal year.
India-Israel and India-Iran: Walking a Diplomatic Tightrope
India’s foreign policy has long been defined by strategic autonomy building ties with all sides, avoiding hard choices. The India-Israel relationship is deep in defence technology and intelligence cooperation. The India-Iran relationship is equally significant, rooted in energy trade, access to the Chabahar port, and civilisational history.
The current crisis is putting both relationships under severe pressure. India cannot endorse the US-Israeli strikes on Iran without alienating Tehran. But it cannot openly oppose them without damaging its ties with Washington and Tel Aviv.
Iran granted rare exceptions for select Indian-flagged vessels amid the closure. Two LPG carriers Shivalik and Nanda Devi transited the strait around March 13 and 14 after diplomatic engagements between New Delhi and Tehran. Iran’s ambassador to India confirmed the allowances as exceptions.
The Indian government also resumed procurement of Iranian crude after the US waived sanctions, aiming to secure supplies amid global disruptions.This quiet balancing act maintaining back-channel diplomacy with Tehran while publicly refraining from criticism of Washington reflects India’s predicament in a world that increasingly demands you pick a side.
India’s Emergency Response: Necessary but Not Enough
New Delhi has moved swiftly to manage the immediate crisis. The government invoked the Essential Commodities Act to prioritize LPG and natural gas for households, negotiated safe passage for ships through the Strait of Hormuz, expanded the Economic Stabilization Fund, and sought international oil reserve releases .A Natural Gas Control Order was issued on March 9, 2026, directing domestic refineries and petrochemical facilities to increase LPG output by diverting related hydrocarbon streams. Domestic LPG production increased by approximately 25%.
The International Energy Agency agreed to release 400 million barrels of oil from emergency reserves.But as analysts were quick to point out, at world consumption rates, 400 million barrels would theoretically cover just four days of global consumption It buys time. It doesn’t buy security.
The government has repeatedly noted that strategic reserves remain sufficient for at least 25 days of crude oil and LPG, and 10 days for LNG.In a prolonged conflict, 25 days is not a buffer it is a countdown.
The Unexplored Oil Reserves: India’s Long-Term Answer
Here is where opinion must be stated plainly: India does not have a shortage of energy. It has a shortage of will to develop the energy it already possesses.
India is sitting on an estimated 22 billion barrels of untapped oil reserves, located in underexplored basins like Mahanadi, Andaman, Bengal, and Kerala-Konkan. Currently, India imports a staggering 87% of its oil, spending over $132 billion annually on crude oil imports.Despite only 10% of India’s 3.36 million square kilometres of sedimentary basins currently under exploration, the Indian government has been aiming to increase this figure gradually through upcoming OALP bidding rounds. So far, 144 blocks covering about 244,007 square kilometres have been awarded under the program.The pace is insufficient. Every year of delay in unlocking these unexplored oil reserves is another year of writing cheques to foreign oil producers, another year of exposure to exactly the kind of disruption India is currently suffering.
India, the world’s third-largest importer of crude oil, will continue to import an estimated 5 million barrels a day until these unexplored basins are developed with demand growing at 5% per annum.That trajectory must change.
India Economy Ranking: Too Big to Be This Fragile
India is the world’s fifth-largest economy by GDP and one of the fastest-growing major economies on the planet. Its economy ranking in global terms continues to rise. Yet the current crisis reveals a structural fragility that is disproportionate to India’s stature.
Every $10 per barrel increase in oil prices widens India’s current account deficit by 0.4–0.5% of GDP. At $100 per barrel, India’s current account deficit moves toward 3% of GDP, compared with the baseline forecast of about 1.5%.The rupee falls, inflation rises, and the growth story is interrupted.
An India GDP of nearly $4 trillion should not be this vulnerable to a 56-kilometre strait. The solution is not just diplomatic it is geological. India must treat its unexplored oil reserves as a national security asset, not merely an economic opportunity.
Expert Voices
Rahul Chauhan, an upstream analyst at S&P Global Commodity Insights, has emphasized the scale of India’s unexplored oil and gas sector. He has noted that while ONGC and Oil India hold acreages in the Andaman waters, India still awaits the entry of an international oil company with deepwater and ultra-deepwater exploration expertise to unlock these frontier regions.Energy analysts have warned that strategic oil releases may calm panic in markets but cannot replace the lost function of a disrupted shipping corridor. As one expert told Al Jazeera: “The release may soften the shock and calm nerves temporarily, but it will remain limited as long as the fundamental problem the freedom of supply and tanker movement through Hormuz remains unresolved.”
Global and Regional Impact
The war’s cascading economic fallout is now radiating well beyond the Gulf, reshaping global commodity markets, food systems, industrial supply chains, financial conditions and geopolitical alignments potentially for years to come.
The Federal Reserve Bank of Dallas estimates that a one-quarter closure of the Strait of Hormuz is expected to raise the average WTI price of oil to $98 per barrel and lower global real GDP growth by an annualized 2.9 percentage points. A disruption lasting three quarters could reduce global GDP growth by 1.3 percentage points for the full year.
For India, the regional impact is compounded by the Chabahar dimension. The ongoing conflict also affects India’s regional connectivity initiatives, as the Chabahar Port which India has been developing as a trade corridor linking it to Afghanistan and Central Asia has been caught in the wider disruption.
Conclusion: The Crisis India Needed to Have
No crisis is entirely without value if it forces the right decisions. The Strait of Hormuz disruption should be the moment India permanently resets its energy strategy accelerating exploration of unexplored oil reserves, building deeper strategic petroleum stockpiles, and diversifying energy partnerships beyond any single region.
India-Israel ties must be managed carefully. India-Iran ties must be preserved through diplomacy, not abandoned. And the India economy ranking must be defended not just with fiscal policy, but with energy independence that no foreign conflict can easily disrupt.
India does have oil. The question is whether this crisis is finally the catalyst to go find it.
FAQs
What were the effects of wars on Indian industries?
Wars in the Middle East have historically disrupted India’s oil supply chains, raised fuel and input costs for manufacturers, increased logistics expenses, and triggered inflationary pressures that slow consumer demand and industrial output. The current Hormuz crisis has forced LPG rationing, reduced industrial gas supply, and is projected to cut India’s GDP growth by up to one percentage point in FY27.
Is India affected by the Iran war?
Yes, significantly. India sources over 50% of its oil imports and up to 90% of its LPG imports via routes that pass through or near the Strait of Hormuz, which Iran has effectively closed. The crisis has spiked fuel prices, weakened the rupee to record lows, triggered emergency government orders, and prompted New Delhi to pursue urgent diplomatic engagements with Tehran to secure passage for Indian-flagged vessels.
What was the role of India in the Gulf War?
India maintained a position of strategic non-alignment during the 1990–91 Gulf War. New Delhi did not participate militarily but was severely impacted economically oil prices surged, the balance of payments deteriorated sharply, and a massive airlift of Indian workers from Kuwait (one of the largest in history) was conducted. The Gulf War was one of the triggers that pushed India toward the landmark 1991 economic reforms that opened its economy to the world.
