India, Hormuz, and the imperative of energy diversification

The Strait of Hormuz remains the world’s most consequential energy chokepoint. Nearly 21 million barrels per day of oil — about one-fifth of global consumption — passes through this narrow maritime corridor connecting the Gulf to the Indian Ocean. For India, which imports roughly 85 percent of its crude oil, instability in this region represents a persistent macroeconomic vulnerability.

Yet the nature of the risk is often misunderstood. A disruption in Hormuz is unlikely to physically cut India off from oil supplies. The global oil market is large, liquid, and remarkably adaptive. Cargoes can be rerouted across continents and supply chains reorganized when price signals change. The more immediate impact of a geopolitical crisis would come through higher oil prices and increased market uncertainty, both of which propagate through India’s economy via inflation, exchange-rate pressure, and a widening current account deficit.

India imports roughly 5.2 million barrels per day of crude oil. Every $10 increase in oil prices raises the country’s annual import bill by approximately $15–20 billion. A sustained rise from $80 to $110 per barrel during a geopolitical crisis could therefore add more than $50 billion to India’s import bill, placing pressure on the rupee and widening the current account deficit.

Managing this exposure requires a disciplined strategy built around diversification of supply and reduction of structural vulnerability.

Over the past several years, India has already demonstrated considerable flexibility in sourcing crude. The rapid rise of Russian oil in India’s import basket illustrates how quickly global supply chains can reorganize when price signals change. Beyond Russia, producers in the Atlantic basin — particularly Brazil and Guyana — are expanding offshore production and represent an increasingly important component of India’s long-term sourcing strategy.

Another emerging opportunity lies in Canada. The expansion of the Trans Mountain pipeline now enables crude from Alberta’s oil sands to reach the Pacific coast at Vancouver. From there, shipments of Western Canadian Select can move directly across the Pacific to Asian markets, including India. Most Indian refineries are configured to process heavier crude grades, making Canadian supply a natural complement to existing imports.

More importantly, these barrels originate entirely outside the Gulf system, providing India with a geographic hedge against disruptions around Hormuz.

These emerging Atlantic and Pacific supply routes matter strategically because they diversify India’s import geography. Oil from Brazil, Guyana, or Canada travels through the Atlantic or Pacific oceans rather than the Gulf, reducing dependence on a single maritime chokepoint.

However, supply diversification alone does not eliminate the structural dependence on crude oil. While renewable electricity can complement and substitute fossil fuels in power generation, crude oil remains deeply embedded in transportation fuels, petrochemicals, aviation, and industrial feedstocks—sectors where substitution is far more complex.

For this reason, India’s energy security strategy must rest on three complementary pillars.

The first is geographic diversification of crude supply, ensuring that no single region dominates India’s import mix. The second is the expansion of strategic petroleum reserves, which provide a critical buffer during short-term supply disruptions and help stabilize markets during geopolitical crises. The third is the development of domestic pathways to substitute crude-derived fuels and chemical feedstocks, including biofuels and coal-based gasification technologies capable of producing synthetic fuels, methanol, and petrochemical feedstocks.

Equally important is improving the efficiency with which oil is used across the economy. Electrification of transport, modernization of logistics, and more efficient industrial systems can steadily reduce the oil intensity of economic growth and lower the macroeconomic sensitivity of India’s economy to oil price shocks.

Taken together, these measures form a coherent resilience strategy.

Diversified import sources — from the Middle East to Russia, the Atlantic Basin, and emerging producers such as Brazil, Guyana, and Canada — ensure that no single region or chokepoint can dominate India’s energy security. Diversification also improves the economics of crude procurement by expanding the pool of suppliers, strengthening India’s bargaining power, and enabling refiners to optimize crude blends and freight routes. Strategic reserves provide short-term protection during disruptions, while domestic fuel and chemical pathways gradually reduce structural dependence on imported hydrocarbons.

In effect, diversification is not merely a hedge against geopolitical disruption; it is also a pathway to lower procurement costs, greater market flexibility, and stronger long-term energy security.

The lesson from Hormuz is not that India must retreat from global energy markets. Rather, it must engage them with greater strategic depth — diversifying supply routes, expanding reserves, and building domestic capabilities that provide substitutes for imported hydrocarbons where possible.

Geopolitical shocks will remain a feature of the global energy landscape. The challenge for policymakers is not to eliminate those shocks — an impossible objective — but to design an energy system and an economy capable of absorbing them without sacrificing stability or growth.