The oil shock triggered by the US-Israel war against Iran—impacting almost every country except Russia—is among the most severe in modern history. Yet, somewhat surprisingly, global oil markets have held up reasonably well so far.
Even after a month of conflict, oil prices have risen by about 70%. This is significant, but still far lower than the spikes seen during earlier crises. The 1973 Arab oil embargo saw prices surge by 400%, while the 1978 Iranian Revolution led to a 300% increase—despite both being relatively smaller disruptions compared to the current situation.
In India, while there has been some panic around the availability of liquified petroleum gas (LPG)—particularly affecting restaurants and hotels—the country has managed the crisis fairly well so far.
Before the conflict began on 28 February 2026, about 20% of global oil supplies—around 20mmbpd (million barrels per day)—passed through the Strait of Hormuz. Since the war started, the strait has been largely blocked by Iran. Even when limited shipping has been allowed, the actual movement of oil has remained minimal.
Although Iran has stated that only ships from ‘non-friendly’ countries would be restricted, the reality is that oil flows have been significantly disrupted. Adding to the uncertainty are repeated threats from US president Donald Trump to target Iran’s oil infrastructure, power plants, and desalination facilities. This raises serious concerns about the future of the Strait of Hormuz.
Saudi Arabia has managed to partially offset the disruption by restarting the East-West pipeline, enabling the transport of around 7mmbpd via the Yanbu port. However, this route depends on another vulnerable chokepoint—the Bab el-Mandeb Strait—where Iran-backed Houthi forces in Yemen pose a persistent threat.
The UAE, meanwhile, has been able to move about 1.8mmbpd through the Fujairah terminal, bypassing the Strait of Hormuz. Despite these efforts, the world is currently facing a loss of around 12mmbpd—the largest supply disruption seen in any oil shock so far.
But the real concern lies ahead.
India must prepare for a worst-case scenario in which Iran mines the Strait of Hormuz, making it completely impassable. If Houthi militants also intensify attacks in the Red Sea and block the Bab el-Mandeb Strait, oil flows from the Middle East to Asia and Europe could come to a near standstill. In such a situation, the world could lose up to 20mmbpd for an indefinite period.
There is an even more alarming possibility. Iran could target and destroy oil and gas infrastructure across Saudi Arabia, the UAE, Kuwait, Qatar and Oman. Such damage could disrupt supplies for years—possibly five or more. While this is an extreme scenario, it cannot be ruled out.
In that case, oil prices could easily cross US$200/barrel.
This is why India must act now and prepare its energy sector for multiple contingencies. Whether by foresight or fortune, India secured a deal to import 2.3mt (million tonnes) of LPG from the US last year. More such strategic planning is urgently needed.
I strongly urge the government of India to act on the following recommendations on a war footing, regardless of whether the conflict ends soon or drags on:
1. Set Up a High-level Coordination Mechanism
A Cabinet sub-committee comprising key ministries—power, petroleum and natural gas, coal, and the department of atomic energy—should be formed and chaired by a senior minister. This body must meet regularly and coordinate responses based on inputs from a technical modelling group. I have advocated this approach during earlier crises as well.
2. Create a Specialised Technical Modelling Group
A team of experts in oil and gas, power, coal, international energy markets and data modelling should be tasked with building simulation models. These models must assess scenarios such as blockages in the Strait of Hormuz, the Red Sea, or the Suez Canal, and potential damage to Middle East energy infrastructure. The goal is to develop actionable strategies for each scenario.
3. Prioritise LPG Supply for Households
Ensuring an uninterrupted LPG supply for households must be the top priority. The government has already asked refineries to increase LPG output by 40%, but this target could potentially be exceeded during wartime conditions, even if it means cutting back on other products. Today, nearly all households have LPG connections, and about 75% rely on it for cooking. Any disruption here could lead to widespread distress.
4. Strengthen Real-time Data and Storage Assessment
India is estimated to have around 74 days of oil reserves—seven days in strategic reserves and 67 days in refinery storage. However, the accuracy and real-time availability of this data are questionable. With modern IT systems, it should be possible to track oil and gas inventories across the supply chain—from shipments at sea to refineries and retail outlets.
For comparison, OECD countries and China maintain reserves equivalent to 90 days of imports. India, despite an oil import dependence of about 89%, has yet to build adequate strategic reserves. LPG imports account for around 46%, and natural gas around 50%.
While India has diversified its oil import sources—from 27 countries to 41 in recent years—this alone is not enough. A comprehensive strategy is essential to deal with disruptions at critical chokepoints.
5. Reduce Dependence on Oil and Gas Imports
India must accelerate efforts to cut import dependence. This includes revisiting exploration policies to attract investment. While politically sensitive, the government may also need to allow fuel price increases to pass through, while supporting vulnerable sections through direct benefit transfers (DBT).
Other steps include faster electrification of railways and reducing the use of diesel and petrol for backup power generation.
India does not have the luxury of responding through slow, bureaucratic processes. Only the prime minister’s office (PMO), if convinced of the urgency, can drive swift and coordinated action.
Developing advanced energy models is not a complex task—several institutions already have such capabilities. What is critical now is speed, the right expertise, and direct access to top-level decision-making.
The risks are real and the window to prepare is narrowing.
(Dr Bhamy V Shenoy, an IIT-M alumnus who holds a PhD in business administration from the University of Houston, had ring-side experience of the first two oil shocks of 1973 and 1979 as manager for Conoco, one of the largest international oil companies. He was in charge of forecasting oil prices and had seen the devastating impact of those two oil shocks.)
This crisis is compounded by the inherent structural incapacities of the Public Sector Oil Marketing Companies (OMCs). Hampered by procedural inertia, convoluted tendering processes, and a palpable lack of specialized expertise, these entities have presided over a legacy of chronic time and cost overruns with virtually nil accountability. While the public sector struggles for years to augment basic tankage, the private sector demonstrates the agility to commission massive, state-of-the-art infrastructure "within the blinking of an eyelid". The need of the hour is to go in for PPP or outsource with 30 year contracts to Private sector for infrastructure, Operation and Logistics