Sanjeev Ahluwalia | Our ‘Goldilocks’ Moment: How To Insulate From War

The ill-advised and poorly thought-through war across the Middle East has adversely affected “good actors” like India even more than “bad actors”, At risk is India’s upward-inclined growth trend, flattening inflation and export prospects, which were just recovering from the global dislocation caused by the bilateral imposition of arbitrary American import tariffs in early 2025.

Economic uncertainty, as the efficacy of global trading rules fade, is now heightened by a weeks-long war in the Persian Gulf as the United States and Israel bludgeon Iran into a humiliating defeat, while the powerful friends of Iran, like China and Russia, stand by and India scrambles to set its own energy supply chain in order.

India imports 80 per cent of its Liquified Petroleum Gas (LPG) from Saudi Arabia, which 330 million households all across the country and commercial users depend upon for cooking. Our natural gas imports are from Qatar. The West Asian crisis has disrupted both energy imports. Iran regulates the passage of shipping through the Strait of Hormuz – a narrow choke point for exiting the Persian Gulf and entering the Arabian Sea. Energy importers, like India, now live from ship-to-cooking stove.

Ramping up domestic production of LPG is not an alternative. Only a small fraction -- about four per cent of crude -- can be refined into LPG. To meet its full domestic LPG demand from domestic production, India would need to ramp up its crude refining capacity by four times, import all the additional crude and then export all the fractional products produced as well. This is like getting the tail to wag the dog, which was never an economical strategy and certainly not when oil is past its prime as an energy source.

Better options to meet the domestic supply of cooking energy are at hand. First, expanding the supply of piped natural gas (PNG) from just 14 million users (domestic and commercial) at present to 126 million by 2034 is planned. Sadly, we are not abundant in natural gas resources either and import about one half of our demand, mostly from Qatar. The import risk can be diluted by storing more natural gas in liquid form (LNG). But this is thrice as expensive as storing LPG, and twenty times more expensive than storing crude.

Another option being explored is the domestic production of Dimethyl Ether (DME) from coal via the gasification route. While it is lower in energy content than LPG, it can bulk up LPG supply by 20 per cent, while also capturing the carbon emissions from the use of coal -- a mineral in which India is abundant.

By 2050, petroleum is unlikely to have the dominant role it commands in energy markets today. In the long term, expanding electricity supply is the primary option to derisk cooking and transportation fuel from external supply risk, via improved induction stoves, electric vehicles and hydrogen fuelled heavy transport.

Popularising this option requires a root and branch reform of India’s electricity economy in conformity with climate objectives. This reform also feeds into the base layer of a five-stack AI infrastructure.

In the near and medium term, two actions can make the petroleum fuel supply chain resilient and derisk it from geopolitics. The most capital heavy option is to deepen our strategic energy reserves. The government’s crude reserve is good for ten days of demand. The oil companies maintain another sixty-day reserve. Deepening our total reserves to 100 days of consumption across crude, LNG and LPG would require an outlay of Rs 3 trillion to Rs 4 trillion, plus annual maintenance charges. Petro-deficient nations like Japan, South Korea and China store even more.

The required fiscal resources equal about one-half of the outlay for defence of Rs 6 trillion this year. However, the Union government earns one-half of this amount annually via tax on fuels. Squirrelling away, say one-third, for creating normative strategic petroleum reserves is not impossible. The upfront cost can be reduced by partnering with our petroleum fuel supply partners -- the United States, Russia, Saudi Arabia, Qatar and Australia -- to invest in storage facilities in India -- particularly LNG – which is the most expensive to store.

The second option is to mainstream our structural dependence on imported petroleum as a key driver of our external relationships and shape the domestic narrative accordingly. The Reliance Industries group is reportedly investing in the US to build a refinery. Encouraging other major Indian business groups to network India into the global investment landscape should be a key diplomatic initiative. Indian companies going global is the flip side of privatisation of publicly-owned Indian energy companies via foreign direct investment.

Could India have managed the 2026 oil crisis better? India’s import dependence is the lowest for LNG, which is at about 50 per cent, followed by LPG, at 65 per cent, and crude, at 85 per cent. Of the three, LNG is the least widely traded with long-term fifteen-year contracts. Diversifying the sources for its import can dilute war risk for PNG and LPG.

Curiously, piped cooking gas (PNG) and CNG transport fuel- derived from LNG have been the least in the news. Public hysteria is around LPG supply -- the common household cooking fuel. The supply of fuel for India’s 260 million motorcycles and scooters and 50 million private cars and stand-by generators for decentralised electricity supply is similarly a lifestyle necessity. But petrol and diesel are refined from crude, which is widely traded globally, so the availability risk is minimal though the price risk exists.

Despite the fuss, the domestic supply of petro products supply has been maintained.

Pumps have not gone dry for petrol or diesel. Regulations for the fair distribution of LPG cylinders have been revised to discourage panic purchase by increasing the gap between refill of LPG cylinders from 14 days to 25 days in urban areas and 45 days in rural areas.

More significantly, a return to explicit, even-handed diplomacy, across the warring parties, has been well received by Iran, as shown by preferential through-passage for Indian (and Chinese) energy cargo in the Strait of Hormuz. The resumption of Russian crude supply will similarly assist in normalising energy supply for India. The habit of jugaad is so deeply ingrained in India, that even foreign policy mandarins are not immune to it. Enshrining into policy practice, the lesson of successful jugaad -- that energy security is critical for extending India’s Goldilocks moment -- would be extremely welcome.

The writer is Distinguished Fellow, Chintan Research Foundation, and was earlier with the IAS and the World Bank