West Asia War Triggers South Asia’s Energy Shock

68

South Asia’s fragile energy balance is beginning to crack under the weight of a widening conflict in West Asia, exposing the region’s deep dependence on imported fossil fuels and triggering emergency policy responses from New Delhi to Dhaka.

The confrontation involving the United States, Israel and Iran has rattled global energy markets, disrupting oil shipments through the Strait of Hormuz, the narrow corridor that carries nearly 20% of global crude trade. Brent crude surged from roughly $71 per barrel before the conflict began on February 27 to nearly $117 by March 9, before stabilizing around $90–$100, while spot LNG prices have jumped as much as 50% in recent weeks.

For South Asia’s import-heavy economies, the consequences are immediate and severe. India, Pakistan, Bangladesh, Sri Lanka and Nepal import between 70% and 90% of their energy requirements, making them among the world’s most vulnerable to geopolitical energy shocks.

A new analysis by the Global Trade Research Initiative (GTRI) warns that India’s energy security is entering a “fragile phase” as supply pressures simultaneously build in both the Gulf and Russia—two sources that together account for more than 80% of the country’s crude imports.

“India’s energy security cannot depend on short-term market purchases or temporary permissions issued by Washington,” said Ajay Srivastava, founder of GTRI and author of the report, arguing that the current crisis demands urgent strategic action.

India’s Energy Exposure

West Asia remains the backbone of India’s hydrocarbon supply chain. In 2025, the region accounted for 48.7% of India’s crude oil imports, 68.4% of LNG imports and over 91% of LPG supplies. Such concentration leaves the economy dangerously exposed to disruptions in Gulf shipping routes.

The strain is already visible in domestic markets.

LPG prices were recently raised by ₹60 (about $0.72) per 14.2-kg household cylinder and by roughly ₹115 (around $1.38) for commercial cylinders, pushing the retail price in Delhi to about ₹913 (around $11) per cylinder. Shortages of commercial LPG have already been reported in cities such as Mumbai and Bengaluru, forcing restaurants and hotels to warn of possible shutdowns if supplies tighten further.

Meanwhile, volatile crude prices are raising India’s import bill and putting pressure on the rupee. Economists estimate that every $10 increase in oil prices adds roughly $15 billion (about ₹1.25 lakh crore) to India’s annual import bill, while feeding inflation through higher transport and fertilizer costs.

Against this backdrop, GTRI argues that India must move quickly on three fronts to cushion the economy.

Stop Fuel Exports Temporarily

The first recommendation is politically sensitive but economically straightforward: temporarily halt exports of petrol and diesel to prioritize domestic supply.

India has emerged as a major exporter of refined fuels, shipping roughly 60–65 million tons of petroleum products annually, valued at roughly $45–50 billion (about ₹3.7–4.1 lakh crore) to markets in Asia, Africa and Europe. But during a supply crisis, GTRI argues, those exports should be redirected to domestic markets.

“The government can invoke national energy security provisions to prioritize domestic availability,” Srivastava said, noting that redirecting refinery output inward could help build strategic fuel stocks and shield transport, agriculture and industry from supply shocks.

Across Asia, several governments have already taken similar precautionary steps. China has instructed its state refiners to suspend new diesel and gasoline export contracts, while Thailand has halted petroleum exports to safeguard domestic inventories. In Singapore, supply disruptions forced the Petrochemical Corporation of Singapore to declare force majeure, cutting production and shipments.

Lock in Russian Supply

The second recommendation focuses on securing long-term crude contracts with Russia.

Since the Ukraine conflict reshaped global oil flows, Russia has emerged as India’s largest supplier, accounting for roughly 35% of the country’s crude imports in fiscal 2025, worth nearly $50 billion (about ₹4.1 lakh crore).

Discounted Russian crude has allowed Indian refiners to cushion domestic consumers from global price spikes. GTRI argues that locking in long-term supply agreements would provide stable volumes and predictable pricing, insulating the economy from extreme volatility.

India’s alternative supply options remain limited. Although imports from the United States rose 82% in 2025 to $9.8 billion (about ₹81,000 crore), America itself runs a net crude deficit and has limited spare export capacity. Crude shipments from West Africa or Latin America involve longer voyages and significantly higher freight costs.

Resist External Pressure on Energy Trade

The third recommendation is openly geopolitical: India should ignore or oppose U.S. attempts to influence its purchases of Russian oil.

Earlier this month, the U.S. Treasury issued a one-month waiver allowing India to buy Russian cargoes already stranded at sea, but the volumes involved are relatively small.

According to GTRI, India’s energy policy cannot depend on temporary waivers issued in Washington.

“India and Russia are sovereign states, and their bilateral trade does not fall under U.S. jurisdiction,” the report argues, warning that attempts to regulate such commerce amount to extraterritorial control over global trade.

Shockwaves Across South Asia

The energy shock is reverberating across the wider region.

In Pakistan, gasoline prices have been raised by nearly 20% to curb demand, while the government introduced a temporary Rs26 per unit electricity tariff (about $0.09 per kWh) to encourage industries to shift from captive power generation to the national grid.

Bangladesh is battling severe LNG shortages, forcing fuel rationing and temporary closures of universities and factories. The country faces a power deficit of roughly 2,500 megawatts, partly offset through electricity imports from India.

Sri Lanka, still recovering from its economic collapse, has seen fuel prices surge sharply since 2022, with petrol up more than 30% and diesel more than 80%. Nepal, reliant on petroleum imports from India, has implemented tax adjustments and efficiency measures while accelerating hydropower development.

Sectoral Fallout

The crisis is rippling far beyond retail fuel markets.

Natural gas shortages are hitting power generation and manufacturing across the region. In aviation, jet fuel prices have nearly doubled to $150–$200 per barrel, forcing airlines to raise fares sharply. Tickets between India and Gulf destinations have surged severalfold, reflecting both fuel costs and war-risk insurance premiums.

The fertilizer industry faces another looming risk. Natural gas accounts for 60–80% of the cost of producing nitrogen fertilizers, and disruptions in Gulf ammonia and urea exports threaten supplies ahead of South Asia’s kharif planting season.

India alone imports roughly 40% of its fertilizer requirements, raising fears that prolonged supply disruptions could trigger higher subsidies and food inflation.

A Strategic Wake-Up Call

For policymakers, the crisis is reinforcing an uncomfortable truth: South Asia’s economic growth remains tightly bound to volatile global energy markets.

India spends roughly $150–170 billion annually on crude imports (around ₹12–14 lakh crore), making oil the single largest component of its import bill. When prices surge, the impact spreads quickly—from currency markets and fiscal balances to household budgets.

The GTRI report concludes that ensuring stable energy supplies is no longer just an energy policy question but a central pillar of economic stability.

And as the West Asia crisis deepens, that stability across South Asia is beginning to look increasingly fragile.