The coming oil crisis

My previous post on the Iran war, detailed how the closure of the Strait of  Hormuz would affect energy sales and impact the economies in the region.
https://rpdeans.blogspot.com/2026/05/iran-war-part-2-calm-before-storm.html

This crisis would come from the closure of the strait of Hormuz, affecting 20% of the world’s oil and from the longer term damage to oil fields, when the amount of oil pumped is lower than the minimum flow needed to keep an oil well functioning (production is cut where there is no capacity to store extracted oil). I had taken only a passing interest in India, as I was covering the military aspects of this conflict and because the Govt and media seemed upbeat about India handling the energy shortage. A more detailed look at the numbers for India gave me cause for concern.  

As a major oil importer, India will be affected more than others because we have done the least, so far, to mitigate against this. While this is not a crisis of the Govt's making and every country has been caught unprepared, incl. the country that started the war, we have neither increased price significantly, nor legislated to cut demand. We have secured some alternate supply, but it is not enough.

Some points to consider when understanding the energy shock we are going to face:

1. Only 11% of our crude oil is produced locally.
2. A lot of India’s crude oil is re-exported in the form of refined oil products.
3. Before the Iran war, 40% of our crude oil came through the strait of Hormuz
4. When the strait of Hormuz was closed on 1^st Mar, we had almost a month’s stock of crude oil
     in transit (at sea)
5. India has a strategic reserve of about 25 million barrels (capacity of 35 million barrels). This is in addition to normal stocks held by oil companies across the supply chain, which are another 200-225 million barrels.

India’s consumption and export of oil

	2nd Half 2025 average /month Mil metric tons (MMT)*	Jan Feb 2026 average MMT	Mar 2026 MMT	Apr 26 MMT
Crude import	20.42	20.55	19.0	18.58
Domestic production	2.34	2.23	2.33
Products import  (includes LPG)**	4.14	3.48	2.87	2.80
Products export	5.44	4.63	4.47	3.65
Net domestic availability	21.46	21.63	19.73

* 1 Tonne of crude is approx. 7.3 barrels.
** LNG import not included.

India’s domestic oil production has fallen for 11 consecutive years. In March 26, with a sharp drop in imports, domestic production could not increase to even 2025 levels.

March imports were lower than Feb (pre-war) despite some of the oil ex the strait of Hormuz being at sea and escaping the blockade AND although we bought Iranian oil, which was also at sea, for which sanctions were relaxed for a month. 

Although exports fell in April, it did not result in increased availability of petrol and diesel, because
the reduced export was substituted by an increase in LPG production, since gas (LPG) imports were also reduced by the closure of the Strait of Hormuz. 

This there are already 2 consecutive months – March & April, where total availability is less than
consumption (of approx. 20 MMT per month). Demand has only been met by a reduction in reserves, which were low to begin with. As a comparison, China’s strategic oil reserves are over 1000 million barrels. 

Of our oil imports (with imports in 2025 as a benchmark), Iraq supplied 0.85 million barrels /day (MBD) and Kuwait 0.2 mbd. These supplies have reduced to zero, since there is no alternate route apart from the strait of Hormuz. Their production is now below the MSFR (the minimum quantity for an oil well to function) and oil wells that are shut can take months to revive, as I had explained in my previous blog article. The other countries supplying through the strait of Hormuz were Saudi – 0.65 mbd and UAE 0.5 mbd. Together, these comprise over 40% of our oil imports. In the longer term Saudi and UAE can reroute oil exports away from the Strait (Saudi, through the Red sea and UAE, through its pipeline ending at Fujairah – though both routes can be attacked by the Houthis and Iran respectively ( on 4^th May, oil storage at Fujairah was hit by Iranian drones).

Russia’s supply to India pre war was 1.1 mbd. Their highest supply was 2.1 mbd in June 2025.
In theory an extra 1 million MBD can replace the quantity from Iraq and Kuwait. Supply to India was 1.6 mbd in March (up from 1.1 mbd in feb).

Venezuela has increased supplies from zero before the US intervention, to 0.3 mbd in March. This is heavy crude which can be processed in India, but not in most refineries. April exports were around 0.33 mbd.    

Gas. This comprises both LPG and LNG. India’s production, consumption and import were:

‘000 tonnes	2nd half 2025 average	Jan-Feb 2026 average	Mar 2026	Apr 2026*
LPG import	1901	1936	826	968
LPG Production	1061	1110	1387	1600
LNG import	2250	2200	1673	1940
LNG Production	803	758	788	790
Total	6015	6004	4674	5298

* April figures are estimates based on estimated shortfall in consumption and increase
in domestic production by Reliance.

As in the case of oil, there is a shortfall in supply for two consecutive months. There is no significant storage capacity for gas, so shortages are impacting the domestic industry. For domestic consumers, storage is in the form of a second gas cylinder (double bottle connection).

One million tonnes (1.055 million) of LNG was supplied by Qatar in Jan, which dropped to zero in April.  This was partly made up by Oman (an extra 360000 Tns in April over Jan), Nigeria (200,000 tns extra over Jan) and the US (150,000 tns extra over Jan) which made up most of the deficit.
Russia is a possible future supplier, using the arctic route to supply to a gas terminal in Vladivostok and then to Chennai.  

For LPG, the problem is more serious. 90% of imported gas comes through the strait of Hormuz (from Qatar, UAE, Saudi and Kuwait). There is a shortfall of 1 million tonnes per month in imports.
This is being partly made up by increased domestic production (reducing exports of refined products) of 500,000 Tns. For future supplies, Russia can supply 200,000 Tns per month through Gazprom, which signed an agreement to supply in 2022, but could not do so, due to sanctions, this quantity can be stepped up, as Russia has surplus gas and wants to replace its remaining customers in Europe.  

Fertilizer: There is a double whammy of reduced imports from the middle east, as well as a shortage of gas for Indian fertilizer plants. Of the various fertilizers we use: 
15% of Urea is imported, but almost none through the strait of Hormuz and Russia can provide additional volumes. Indian production will be affected by higher gas prices. 
Over 40% of DAP is imported. None is at risk and Russia and now Belarus (free from sanctions) 
can supply raw materials, to reduce the price of Indian production. Lack of rock phosphate is a 
constraint limiting Indian production volumes. 
100% of Potash is imported. The biggest supplier is Saudi and some of that supply is affected.
Russia, China or Belarus could replace Saudi volume.  
15-20% of Complex fertilizers are imported. Supply from Saudi is affected and Russia can potentially replace that volume. 

Others: Helium, Sulphur and petrochemicals have a high import content, of which a large proportion is from the strait of Hormuz. 

Immediate concerns: There has been nothing in the media or from the Govt, to suggest that we have had oil gas shortages for two months now and that market linked prices should be a lot higher than they are today (for petrol, diesel and LPG). We are the only major importer that has not increased these prices, giving customers no incentive to reduce consumption. The price of aviation fuel and commercial gas have increased sharply, with no indication from the govt on where a possible ceiling is going to be.

For petrol and diesel, the govt, in March, removed the special additional excise duty, by Rs 10, for 
both petrol and diesel. At an oil price of $ 105-110 per barrel, the price of petrol and diesel should be 
about Rs 5-7 higher than it is now, to maintain the same margins oil companies had in 2025. Going forward, it will have to be a combination of price hikes for the consumer and perhaps a cut in state govt taxes (incl. aviation fuel which is taxed at 25% in Delhi and 29% in TN). 

What we could do: Does India (Reliance in particular) need to export petroleum products when we have a shortage of crude which can be refined into petrol and diesel. While there is a tax on export it is still more profitable to export for e.g. aviation fuel, instead of lower margin petrol and diesel for the Indian market. 

Expedite the use of Ethanol as a clean cooking fuel - less controversial than blending it with petrol 
(E20) for vehicles. 

As an immediate measure, talk with both Iran and the US, to free India bound ships unable to transit the strait of Hormuz (pay Iran indirectly) and also negotiate the purchase of some Iranian oil as China has started doing openly - as I had speculated they would in my previous article. If a ship with Iranian crude sells oil at sea, it hardly matters if the receiving ship is going to unload it in an Indian or Chinese refinery. If we want to comply with the letter of sanctions, the oil could be refined at Vadinar, since 
the refinery, run by Nyara energy (owned by Rosneft of Russia) is already under sanctions. Even if the volume is low, it sends the right signal to the public and markets.

President Trump announced a `Humanitarian mission' (Project Freedom) to get ships from friendly countries out of the strait. It is doubtful if this will actually be implemented as it will involve US ships entering the strait and merchant ships not following Iranian orders when leaving. The actions of 4th May suggest it is not going to happen in the manner intended.
However, it should be possible for the Indian navy to conduct a similar mission, with Iran's tacit approval, to either evacuate some of the 600+ Indian sailors on merchant ships stuck in the strait, or provide aid, or escort ships out of the strait. We have warships in the region under operation Sankalp. 

Longer term optimism: In my older blog article (below), I had suggested that freeing Iranian and Venezuelan oil (from sanctions) would reduce prices and mitigate against supply shock like this. Since then, Venezuelan oil has partly reappeared – its helps the US that India is able to buy some of its heavy crude, without the need to oil companies to make the heavy investments needed to revive the Venezuelan oil industry. In most scenarios for the end of the current conflict in Iran, a diplomatic solution will see Iran oil being free of sanctions. India is an ideal customer, with the ability to process Iran’s light crude and proximity to Iran. Russia will switch supplies away from Europe to Asia and irrespective of how the Ukraine war ends, Russia would probably be India’s biggest oil supplier.  

An additional positive factor is the UAE leaving OPEC. The UAE would ideally like to increase output by another 1 MBD and India with its proximity to the UAE (faster turnaround for a tanker) is an ideal customer. Both Russia and UAE can also supply more LPG.  

Related blog articles: 

https://rpdeans.blogspot.com/2024/12/indias-russian-oil-imports-reality.html

https://rpdeans.blogspot.com/2026/05/iran-war-part-2-calm-before-storm.html

Data: All data on energy imports and production is from the PPAC (Petroleum planning and Analysis cell, Govt of India). Data on global supplies is from IAE and other reports (all links in the previous article on the Iran war. This is the latest IEA report:

https://www.iea.org/reports/oil-market-report-april-2026 

Further reading: (also see the last article in the Iran war series - above, for links). 

On Venezuelan oil