India's tryst with oil shocks: Why one commodity kept reshaping policy

Every large lipid daze has near a people connected India, sometimes done inflation, sometimes done overseas speech pressure, and occasionally done wider economical change. The country's 1991 balance-of-payments situation unfolded against a backdrop of rising lipid prices.

High crude costs aboriginal pushed hard conversations astir subsidies, substance deregulation and vigor security. More recently, shifts successful planetary proviso chains person altered however India buys lipid and manages risks.An lipid daze is simply a abrupt and important question successful lipid prices, whether upward oregon downward, that disrupts economical stability. Although the word is typically associated with crisp terms increases, steep declines are besides considered lipid shocks arsenic some tin interaction inflation, authorities finances, commercialized balances, and wide economical growth.The reckoning successful 2026 is triggered by what the International Energy Agency described arsenic a illness of Strait of Hormuz tanker loadings from much than 20 cardinal barrels per time successful February to astir 3.8 cardinal barrels by aboriginal April, and North Sea Dated terms that touched $144 a barrel. In immoderate ways the lipid daze reminds of 1973. The numbers are different. The architecture of absorption has changed. The underlying dependency has deepened arsenic India imports astir 90% of the lipid for its consumption.In 2025, an RBI insubstantial highlighted that 10 per cent emergence successful crude feeds astir 20 ground points onto header CPI.

How person planetary lipid shocks repeatedly reshaped India's economy? In this communicative we hint the country's travel done 5 decades of large crude disruptions –from the 1973 Arab embargo to the latest Hormuz situation and effort to recognize however each daze influenced system and argumentation decisions, portion tracking the improvement of India's effect implicit time.

1973-74: The Arab lipid embargo

In October 1973, Arab members of OPEC imposed an embargo connected countries that had supported Israel successful the Yom Kippur War. Crude prices moved from astir $3 a tube to $12 by aboriginal 1974. The Economic Survey of India 1974-75 recorded that the petroleum import measure surged that year, contributing to higher wholesale terms inflation. India was past importing astir 30 per cent of its petroleum needs nether a government-administered pricing system.The past Finance Minister Y.B. Chavan told Parliament that the outgo of lipid imports would person "profound implications" for India. Agriculture Minister Fakhruddin Ali Ahmed warned that nutrient accumulation had been disrupted by the vigor situation arsenic India faced superior drought this year. Kerosene rationing began successful New Delhi connected February 1, 1974. In immoderate cities, including Bangalore, kerosene was sold astatine constabulary stations pursuing civilian unrest.

1979-80: The Iranian revolution

The Iranian Revolution of February 1979 removed the world's second-largest lipid exporter from the marketplace wrong weeks. Crude prices climbed from astir $14 a tube successful aboriginal 1978 to $39 by 1980. The Economic Survey of India 1979-80 records that the petroleum import measure roseate steeply arsenic a stock of some merchandise exports and GDP. “The equilibrium of payments came nether terrible unit during 1979-80 due to the fact that of the crisp summation successful crude lipid prices and prices of different imports and a ample measurement of imports necessitated by home shortages.

The precise aforesaid home constraints besides depressed exports. As a effect the commercialized spread widened to Rs. 2233 crores successful 1979-80 arsenic compared with Rs. 1088 crores successful 1978-79. Foreign speech reserves (excluding golden and SDRs) declined by Rs.

56 crores during the twelvemonth whereas they had risen continuously and substantially successful erstwhile years.” the survey noted. India subsequently approached the International Monetary Fund and entered an SDR 3.9 cardinal Extended Fund Facility successful 1981-82, partially owed to cumulative balance-of-payments unit from 2 successive shocks. 1990-91: The Gulf warIraq's penetration of Kuwait successful August 1990 pushed Brent crude prices wrong weeks. The situation struck an system that was already nether unit from widening outer imbalances built up done the 1980s. According to the World Bank's India Country Economic Memorandum, 1991 (Report No. 9412-IN), India's existent relationship shortage roseate from 1.7 per cent of GDP successful 1980–81 to 3.1 per cent successful 1989–90, portion outer indebtedness accrued from $20.6 cardinal to $63.1 cardinal during the aforesaid period.

The study besides noted that the debt-service ratio had climbed sharply from 9.3 per cent of gross existent receipts successful 1980–81 to supra 27 per cent by the precocious 1980s, leaving the system progressively susceptible to outer disruptions.The World Bank noted that accent had begun gathering adjacent earlier the Gulf situation intensified. "The equilibrium of payments came nether expanding strain adjacent earlier the Gulf situation due to the fact that of a slowdown successful export maturation to hard currency areas and increasing difficulties successful arranging commercialized borrowing," the study said.

It added that overseas speech reserves had "fallen to 7 weeks of imports by end-July 1990", portion large planetary standing agencies had already begun reviewing India's recognition profile.

The study framed the concern describing lipid daze arsenic 1 of the triggers, noting "Higher lipid prices frankincense deed the Indian system erstwhile it was already connected the verge of a overseas speech liquidity crisis."“The lipid daze resulting from developments successful the Persian Gulf precipitated an economical situation successful India.

The daze itself was not arsenic terrible arsenic those of 1973-74 oregon 1979-80, but it came aft years of fiscal and equilibrium of payments deficits that had greatly weakened the system and eroded overseas confidence” the study noted describing the Gulf warfare concern successful India. According to the World Bank, "the further import costs of higher lipid prices for 1990/91... was astir $1050 million, adjacent to 0.4% of GDP and 4.6% of exports of goods and services."

The instauration besides estimated that "India's wide presumption of commercialized declined by 4% successful 1990/91, equivalent to a nonaccomplishment of 0.7% of GDP," portion "loss of remittances and different factors added astir $870 cardinal to overseas speech costs."The authorities pledged 47 tonnes of golden with the Bank of England and the Union Bank of Switzerland arsenic collateral for exigency outer borrowing. IMF records amusement India drew connected a Stand-By Arrangement (SDR 2.2 billion) and a Compensatory Financing Facility (SDR 1.4 billion) successful 1991-93.

The Economic Survey 1991-92 placed the existent relationship shortage astatine $9.7 billion, oregon 3.1 per cent of GDP.Presenting that year's budget, the past Finance curate Manmohan Singh said: "There is nary clip to lose. Neither the Government nor the system tin unrecorded beyond its means twelvemonth aft year. The country for manoeuvre, to unrecorded connected borrowed wealth oregon time, does not beryllium immoderate more." The New Economic Policy announced successful July 1991 — covering concern delicensing, tariff rationalisation, and partial rupee convertibility — was partially a conditionality attached to IMF support.

2007-08: Crude astatine $147

The commodity terms rhythm of 2007-08 pushed Brent crude to an intra-day precocious of $147.50 connected July 11, 2008, a level not exceeded for astir 2 decades. Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum collectively accumulated under-recoveries exceeding Rs 1 lakh crore successful FY09. The authorities issued lipid bonds to partially compensate, shifting the liability guardant alternatively than booking it immediately.When planetary crude prices touched an all-time precocious of "$142 per tube successful July, 2008", the authorities said it did not afloat walk the summation connected to consumers. In a 2010 statement, past Petroleum Minister Murli Deora said the authorities and nationalist assemblage lipid companies had unneurotic absorbed "under recoveries of much than Rs 1 lakh crore." He besides said substance prices were rolled backmost successful December 2008 and January 2009 aft planetary crude prices eased.

According to the statement, petrol prices stood astatine Rs 47.51 per litre successful June 2006 and Rs 47.93 per litre connected June 24, 2010, conscionable earlier petrol terms deregulation. Despite the terms revisions, Deora said "there volition inactive beryllium the nether betterment of Rs 53,000 crore which the Government and OMCs volition person to carnivore during 2010-11."

The Kirit Parikh Committee, constituted successful 2009 to code the administered pricing system, reported successful February 2010.

“At the aforesaid clip 2008 saw an unprecedented emergence successful lipid terms connected the satellite market…Given our expanding dependence connected imports, home prices of petroleum products person to bespeak the planetary prices.” The Parikh committee recommended. Later, petrol prices were deregulated successful June 2010, the archetypal structural alteration to India's retail substance pricing architecture since the APM's introduction.

2011-14: Three years supra $100

The Arab Spring of 2011 reduced Libyan lipid output and sustained Brent supra $100 a tube for astir of the play from 2011 to 2014.

RBI Balance of Payments information shows the existent relationship shortage widened to 4.8 per cent of GDP successful Q3 of FY2012-13, with petroleum imports a superior driver. Diesel prices were deregulated successful October 2014, aft crude prices had already begun falling.

In these years, the rupee besides came nether strain from the Eurozone indebtedness crisis, superior outflows and widening home deficits. After starting 2011 astatine astir 44.76 against the dollar, the currency slid to 54.30 by December.

The accent peaked during the 2013 "taper tantrum", erstwhile expectations of tighter US monetary argumentation triggered superior formation from emerging markets and pushed the rupee to a then-record debased of 68.85 per dollar successful August 2013.

2020: Covid and the terms collapse

The COVID-19 pandemic produced a autumn alternatively than a emergence successful crude prices. WTI crude futures traded astatine minus $37.63 a tube connected April 20, 2020, arsenic request collapsed and retention filled. India's crude handbasket averaged astir $20-25 a tube successful April 2020. However, the crisp autumn successful crude prices during the pandemic was followed by a reversal arsenic economical enactment resumed globally. As request recovered and vigor markets tightened, planetary crude prices moved higher, starring to an summation successful home substance prices, though argumentation interventions continued to cushion the impact. In a December 2022 statement, Petroleum curate Hardeep Singh Puri told Parliament that portion the mean terms of India's crude handbasket had accrued by 102 per cent -- from $43.34 successful November 2020 to $87.55 successful November 2022– "the retail prices of Petrol and Diesel person accrued successful India by lone 18.95% and 26.5%" during the aforesaid period.

He besides said, "Prices of Petrol and Diesel person not been accrued by nationalist assemblage OMCs since 6th April 2022, contempt grounds precocious planetary prices.

" The authorities said it had reduced cardinal excise work twice, resulting successful a cumulative simplification of Rs 13 per litre for petrol and Rs 16 per litre for diesel, which was "fully passed connected to consumers". The connection besides highlighted the outgo of the intervention, noting that the 3 nationalist assemblage lipid retailers – IOCL, BPCL and HPCL–had moved from a combined nett earlier taxation of Rs 28,360 crore successful the archetypal fractional of FY22 to a combined nonaccomplishment of Rs 27,276 crore successful the archetypal fractional of FY23.

2022-23: Russia's penetration and the sourcing shift

Russia's penetration of Ukraine connected February 24, 2022 led to a important alteration successful India's crude lipid sourcing. Before the invasion, Russia accounted for astir 2 per cent of India's crude imports. The G7 terms headdress connected Russian oil, effectual from December 2022, created a discount — Urals crude traded $15-20 beneath Brent astatine its widest — that Indian refiners, arsenic non-G7 entities, were not barred from using. Russia's stock of Indian crude imports roseate to 21.6 per cent successful FY23, 35.9 per cent successful FY24, and 35.8 per cent successful FY25, according to authoritative commercialized data.

India's crude import measure fell to $132.4 cardinal successful FY24 from $157.5 cardinal successful FY23, partially reflecting the discounted Russian volumes.

US secondary sanctions successful November 2025 targeted Russian companies–Rosneft and Lukoil. Cargo tracking information from Kpler showed Russia's stock successful India's full crude imports fell beneath 25 per cent betwixt December 2025 and February 2026, the archetypal clip successful 2 years.

2025-26: The Hormuz disruption

The IEA's Oil Market Report of June 2025 spoke of a 12-day Israel-Iran struggle that concisely disrupted the Strait of Hormuz and pushed Brent supra $90.

It described the concern arsenic a “significant geopolitical hazard to lipid proviso security”. The larger disruption followed connected February 28, 2026. The IEA's April 2026 study recorded that Hormuz tanker loadings fell from much than 20 cardinal barrels per time to astir 3.8 cardinal wrong six weeks.

Dated Brent reached $144 earlier declining.The Central Government announced an excise chopped connected March 27, 2026, reducing the Special Additional Excise Duty connected petrol from Rs 13 to Rs 3 a litre and efficaciously eliminating the corresponding work connected diesel.Speaking astatine the CII Business Summit connected May 12, petroleum curate Hardeep Singh Puri said lipid selling companies were incurring losses of astir Rs 1,000 crore per time and added that specified a concern was "not sustainable successful the agelong run".After petrol and diesel prices were accrued by Rs 3 per litre, the losses connected LPG, petrol and diesel moderated. Sujata Sharma, Joint Secretary successful the Union Petroleum Ministry, said during a bi-weekly inter-ministerial briefing connected the Middle East concern that the combined losses of lipid selling companies had travel down by astir Rs 250 crore a time to Rs 750 crore daily.

Government officials besides said respective countries had accrued petrol and diesel prices by 20-80 per cent during the period.The PPAC besides revised its Indian handbasket crude look astir the aforesaid period, raising Brent's value from 24.5 per cent to 61 per cent to bespeak the changed sourcing mix.

What governments should beryllium doing: The IMF framework

The International Monetary Fund (IMF), successful a blog station titled 'Responding to the Energy and Food Price Shock: Getting the Policy Details Right' has argued that the situation is not simply whether to intervene, but however to respond without creating larger economical distortions.

In a caller enactment connected responding to vigor and food-price shocks, the IMF said determination is "no one-size-fits-all response", noting that countries disagree successful vigor dependence, fiscal space, marketplace structures and societal extortion systems.

The planetary instauration described vigor crises arsenic a "standard antagonistic proviso shock" that simultaneously pushes prices higher, weakens economical enactment and creates challenges for policymakers.

It said fiscal interventions tin play a role, but should beryllium "temporary, targeted, timely, and tailored".According to the IMF, governments should mostly let home vigor prices to bespeak planetary costs alternatively than relying heavy connected wide controls. "Price signals play a large relation successful allocating scarce resources, encouraging businesslike use, and preventing shortages," it said.For households, the IMF said protecting susceptible groups remains captious due to the fact that lower-income families typically walk a larger stock of their income connected nutrient and energy.

It said "targeted currency transfers, ideally delivered done existing societal assistance systems, are mostly the champion way" to supply enactment portion limiting fiscal pressures.For businesses, the IMF suggested that enactment should absorption connected short-term liquidity issues alternatively than broader marketplace interventions. Measures specified arsenic government-backed loans, recognition lines and impermanent taxation deferrals were described arsenic much effectual and easier to reverse than nonstop grants oregon equity support.The IMF besides cautioned against prolonged usage of wide subsidies and terms caps, informing that specified tools tin weaken marketplace signals and make lasting fiscal pressures. "As a rule, afloat terms freezes should beryllium avoided," it said.The wider economical value of lipid prices extends beyond substance prices alone. Sustained movements successful crude prices tin power commercialized balances, the rupee and existent relationship trends, linking vigor markets intimately with broader economical stability. Over time, governments person sought to equilibrium these pressures done measures aimed astatine moderating ostentation risks, ensuring substance availability and cushioning consumers from crisp disruptions portion maintaining economical momentum.