Diversification has not reduced India’s exposure to global oil shocks, but it has reduced the risk that any single chokepoint or supplier can paralyse its energy system
The US-Israel war on Iran has reminded policymakers that oil shocks are rarely about oil alone; they run through shipping corridors, insurance, sanctions and expectations. By 12 March, Brent briefly touched US$101.6 per barrel. Even when retail prices are partly administered, the macro pass-through is real. A recent parliamentary reply citing the Reserve Bank of India noted that a 10 percent crude shock can add roughly 30 basis points to inflation under full pass-through.
India’s core vulnerability, high import dependence, has not disappeared; the latest data put crude import reliance at about 88-89 percent of consumption, a record high. But its relative resilience amid renewed volatility is not accidental. It reflects a post-2022 reworking of the crude import architecture wherein wider supplier optionality, greater refinery flexibility, and stronger buffers expand policy space during crises.
India has deliberately rebuilt its crude slate since 2022, with official data showing it now sources from roughly 40 countries and routes a majority of its imports through corridors outside the Strait of Hormuz, even as overall import dependence remains uncomfortably high.
This cushion is not immunity; it is relative leverage compared with other import-dependent Asian peers such as Japan and South Korea, which face the same benchmark prices but are far more tightly locked into Middle Eastern crude and Hormuz-linked routes. Japan draws close to 90-95 percent of its oil from the Gulf, and South Korea over 70 percent. By contrast, India has deliberately rebuilt its crude slate since 2022, with official data showing it now sources from roughly 40 countries and routes a majority of its imports through corridors outside the Strait of Hormuz, even as overall import dependence remains uncomfortably high.
The Strait of Hormuz is the clearest reminder that physical constraints affect supply chains faster than prices can adjust. The International Energy Agency estimates that in 2025, nearly 20 million barrels per day (mb/d) of oil was exported via the strait, while alternative routes such as Saudi Arabia’s East-West pipeline and the UAE’s Habshan-Fujairah line together offer only about 3.5-5.5 mb/d of spare export capacity — useful, but nowhere near a full substitute. The latest Iranian strikes on Fujairah’s oil facilities show that even these bypass routes are now at risk, tightening the effective ceiling on reroutable flows.
For India, which has spent the past decade diversifying both suppliers and shipping routes away from a single Gulf corridor, these attacks only reinforce the logic of diversification. The more routes and counterparties New Delhi can rely on, the less exposed it is to disruptions at any single chokepoint or bypass. Given India’s heavy reliance on imported crude, the current shock is especially sensitive because its effects do not pass through in a straight, predictable way. Insurance, rerouting, and vessel scarcity can tighten the delivered barrel even if a producer is willing to sell at a discount.
For India, which has spent the past decade diversifying both suppliers and shipping routes away from a single Gulf corridor, these attacks only reinforce the logic of diversification. The more routes and counterparties New Delhi can rely on, the less exposed it is to disruptions at any single chokepoint or bypass.
Most commentary focuses on price spikes, but the real pressure comes from logistics as fewer tankers and rising insurance costs quickly push transport costs higher. If tanker availability or coverage collapses and war-risk insurance is withdrawn, the effective supply curve steepens and transit costs surge. The result is not only higher prices but sporadic domestic dislocations, seen most clearly in LPG and other lighter products, where dependence on Gulf routes has already produced localised shortages and queuing during the current Hormuz closure.
India’s oil security debate begins with one reality: heavy import dependence. The Petroleum Planning and Analysis Cell (PPAC) estimates crude import dependence at 87.4 percent in FY2022-23, rising from 85.5 percent in FY2021-22, and recent trends suggest it may now be close to 88-89 percent. According to monthly data from the Directorate General of Commercial Intelligence and Statistics (DGCI&S), India’s crude oil imports remained consistently high over the past three financial years, reaching 235.52 million tonnes in FY2022-23, 231.46 million tonnes in FY2023-24, and 244.5 million tonnes in FY2024-25.
India hasn’t solved its import dependence problem, but it has reduced the danger that a shock in one place, whether at Hormuz or from a single supplier, cripples its entire oil system. In a March 2026 briefing, the Ministry of Petroleum and Natural Gas noted that India now sources crude from about 40 countries, up from 27 in 2006-07, and that non-Hormuz routes account for roughly 70 percent of crude imports, compared with about 55 percent before the current conflict. In effect, India has shifted from dependence on a few traditional routes and suppliers to a more diversified system that can adjust when disruptions occur.
Another facet of diversification is that it has created a new centre of gravity around Russia as the marginal barrel supplier. DGCI&S data show Russia’s share of India’s crude import volumes rising from 21.6 percent in FY2022-23 to 35.9 percent in FY2023-24 and 35.8 percent in FY2024-25. Its Quarterly Review of Merchandise Foreign Trade for April-June 2024 places Russia at about 26.9 percent of HS-27 import value, with Iraq, the UAE, Saudi Arabia, and the United States making up most of the rest.
Another facet of diversification is that it has created a new centre of gravity around Russia as the marginal barrel supplier. DGCI&S data show Russia’s share of India’s crude import volumes rising from 21.6 percent in FY2022-23 to 35.9 percent in FY2023-24 and 35.8 percent in FY2024-25.
Two policy conclusions follow. First, diversification is real and measurable. India can now shift volumes across suppliers and regions far faster than in earlier cycles. Second, Russia’s expanding share should not be read as structural dependence; Gulf producers remain embedded in the basket, and the United States and other suppliers provide swing barrels when arbitrage, freight, and politics align.
Supply diversity only matters if the domestic system can use it. India’s key advantage is a large, sophisticated refining base with one of the world’s highest aggregate capacities and complex refineries able to adjust product yields and run a wide crude slate. Official data put capacity at about 256.8 million metric tonnes per annum (MMTPA) in 2023-24, with policy plans pointing to roughly 309-310 MMTPA by 2028.
Refinery-level economics are crucial because resilience depends on whether plants have an incentive to scale operations and keep product flowing when markets are tight. PPAC’s refining-margin data and IOC’s own filings show how quickly those incentives can shift. Indian Oil’s GRM jumped from about US$11.3/bbl in FY2021-22 to US$19.5/bbl in FY2022-23, before dropping to roughly US$4.8/bbl by FY2024-25, with only modest recovery in 2025-26. These margin swings shape how far refiners are willing to use their flexibility, since only strong economics or clear policy signals justify scaling up and adjusting yields. Yet the recent order to maximise LPG yields, lifting domestic LPG output by about 30 percent compared with 5 March levels, largely from the same crude input, shows how quickly flow reconfiguration can turn structural flexibility into an emergency buffer.
High utilisation in a crisis makes economic sense only when margins and domestic fuel prices keep extra throughput profitable, which is why policymakers put such weight on predictable pricing and inventory policy.
Three implications follow for India’s geoeconomic cushion. Refinery flexibility is built, not given, as it reflects years of investment in secondary units, desulphurisation, and logistics — which now underpin India’s aspiration to be a global refining hub. The ability to run heavier, high-sulphur grades is strategically valuable when discounted barrels come from sanctioned or politically constrained producers. High utilisation in a crisis makes economic sense only when margins and domestic fuel prices keep extra throughput profitable, which is why policymakers put such weight on predictable pricing and inventory policy.
The current crisis underlines that diversification buys policy space, not a price shield. For India, the way forward is to treat chokepoint risk as a permanent design constraint, building route redundancy into contracts and shipping, not just suppliers, as the IEA’s Hormuz work makes clear. Strategic buffers also need more than caverns with just 5.33 MMT of underground storage at Visakhapatnam, Mangaluru and Padur. Policy must prioritise clear rules on release, replenishment, and commercial leasing so stocks are usable when markets break.
Diversification cannot quietly become a new dependence. With Russia accounting for nearly one-third of crude imports, the current mix reflects economic logic. However, the durability of this cushion will depend on India’s ability to dynamically rebalance across Russia, the Gulf, the United States, and other suppliers while managing domestic stress.
In that sense, India’s post-2022 oil strategy is best seen as geoeconomic insurance in routes, refineries, and reserves. This strategy cannot prevent shocks, but can shape whether the next one becomes a domestic supply failure or a manageable macro event.
Manish Vaid is a Junior Fellow at the Observer Research Foundation.
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Manish Vaid is a Junior Fellow at ORF. His research focuses on energy issues, geopolitics, crossborder energy and regional trade (including FTAs), climate change, migration, ...
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