How India averted energy crisis during Hormuz war

Six years. Five external shocks.

Covid in 2020. The Supply Chain Crisis in 2021. The Russia-Ukraine War in 2022. The Tariff War in 2025. And now, the Hormuz War in 2026. Each of these shocks was, on its own, capable of blowing a hole in the Centre’s fiscal math. COVID did it literally, pushing the fiscal deficit past 9 per cent. The Supply Chain Crisis did it through imported inflation. 2022 did it through crude at $120. The Tariff War did it by threatening $48 billion of exports overnight. Hormuz did it by taking a fifth of the world’s oil supply hostage for four months.

What deserves more credit than it gets is this: despite absorbing the four shocks before Hormuz, one after another, without room to recover in between, India walked into the middle of 2026 with its fiscal house still in order. That was not an accident, and it was not luck. It was agile policymaking.

Layer the fiscal deficit on top of that. The Centre had committed, back in 2021-22, to bring the fiscal deficit below 4.5 per cent of GDP by FY26. It delivered exactly that, at 4.4 per cent, before a war shut down a fifth of the global oil supply.

FY27 is budgeted lower still, at 4.3 per cent. This number will witness a revision, though not an alarming one. Forex reserves sit north of $680 billion, enough to cover eleven months of imports, even after the RBI sold tens of billions of dollars defending the rupee through March.

The parallel to 2022 is instructive and largely underappreciated. This is where Hardeep Singh Puri’s Ministry scored a huge win.

That year, India went from importing almost no Russian crude to importing close to 40 per cent of its daily requirement at peak, doing so while much of the West objected loudly.

2026 has been the same movie, except the stage was on fire this time. By February, sanctions on Rosneft and Lukoil, impacting market dynamics, had already forced Indian refiners to throttle Russian imports down to roughly a quarter of the basket.

On the last day of February, the Hormuz was shut. No ships or tankers could go in or out. Middle Eastern supply, which had made up over half of India’s crude imports, collapsed by more than 60 per cent. India went back to Russia. By June, Russian crude had hit a record 2.6-2.7 million barrels a day, over half of total imports. Factor in shadow-fleet volumes that don’t register cleanly on AIS trackers, and the honest range through this period has been a steady 35-45 per cent.

A trade deal struck with Washington in February had reportedly extracted a promise to wind these purchases down. New Delhi never confirmed any such promise, and within weeks, the purchases had not merely continued, they had hit an all-time high. Those who were bearish on the Ministry of Petroleum’s capacity were humbled.

Both administrations, Biden’s and Trump’s, tried the same play. Both got the same answer. The calculation in New Delhi has not changed across two very different American presidencies: energy security for 1.4 billion people is not a bargaining chip in Washington’s Ukraine strategy or its Iran strategy. Call it bravado, call it pragmatism, but this is the new Indian mindset the West will have to acquaint itself with.

Because the fiscal cushion existed, the Centre could afford to absorb the hit directly rather than pass it on.  On March 27, excise duty was cut by `10 a litre on both petrol and diesel, bringing diesel duty effectively to zero. This was the Centre taking global crude volatility onto its own balance sheet.

However, the states, who levy VAT on top and control roughly a quarter of the retail price, did precisely nothing. Not one matched the cut. The burden-sharing that fiscal federalism is meant to deliver simply did not show up. Retail pump prices absorbed most of the public attention through this period, but commercial crude stability is the story that actually mattered, and it went almost entirely unremarked upon.

Even with the excise cut in place, fuel prices rose again in May, because OMC losses had widened too far for the duty cut alone to absorb, and the war’s endpoint remained unknowable at the time. That May increase was the last lever left, not the first one pulled.

Commercial and logistics costs never entered double-digit inflation. There was no cascading cost-of-production shock and no MSME collapse, despite a fifth of the world’s oil supply being taken off the board for months.

Diplomacy played a quieter but equally important role. Tankers that had already been rerouted deep into Asian waters were turned back for Indian ports.

The Petroleum Ministry was working overtime to ensure an uninterrupted supply of crude at the Indian shores.

In New Delhi, the Prime Minister’s regime worked with Iran channel directly to keep India-bound cargo moving even while the Strait remained live with mines and gunfire. Hormuz cannot be read in isolation. The excise cut was possible only because of the fiscal discipline built across five consecutive shocks. And here is the number that should end most arguments on this subject: Nirmala Sitharaman presented four budgets: 2020, 2021, 2022, and 2026, that were each blindsided by a crisis within weeks of the speech. Despite that, the same government still delivered the income tax cut and the GST rationalisation in between.

Much of the operational credit for this belongs to Hardeep Singh Puri. As Petroleum Minister, Puri was the one standing in Parliament through the worst of it, laying out numbers rather than reassurances.

LPG procurement, historically 60 per cent dependent on the Gulf, was diversified within days to the United States, Norway, Canada, Algeria and Russia, with domestic LPG output pushed up 28 per cent through refinery directives under an Essential Commodities Act order. None of this made for dramatic television, which is presumably why it went largely uncelebrated. It was the unglamorous machinery of these ministries that had clearly rehearsed for this moment long before the Strait actually shut.