Gas prices in Europe have surged by nearly 70% amid the West Asian crisis, intensifying volatility in global energy markets. Compounding this, Russia imposed a gasoline export ban effective April 1.
Since the Iran war, energy markets have been acutely destabilised. Eurozone inflation rose to 2.5% from 1.9%, driven largely by energy inflation at 4.9% year-on-year. A ₹74 surge in crude, a near-blockade of the Strait of Hormuz, and collapsing Gulf LPG flows should have triggered a domestic spiral across many countries. However, India has managed to contain the retail impact so far.
What’s behind this divergence?
The Shock Transmission
The shock originated at a critical chokepoint: the Strait of Hormuz, through which nearly 25% of global oil flows transit. Disruptions pushed Brent crude from around $70 to over $120 per barrel, a rise of roughly 70%. Consequently, European gas prices rose by about 50%, while retail fuel prices increased sharply; Germany saw petrol rise 18%, Spain 34%, and Portugal’s diesel rose nearly 17%. In several African economies, fuel costs are estimated to have surged by 30% to 50%.
India’s structural exposure was significant. Its crude import dependence stands at 88%, while LPG imports accounted for 60% of consumption, of which roughly 90% transits through Hormuz. With over 100 million households under the Pradhan Mantri Ujjwala Yojana reliant on subsidised LPG, this dependence has direct implications.
Early indicators pointed to stress: LPG imports fell from 3,22,000 metric tonnes to 2,65,000 metric tonnes, while the Gulf’s share in it dropped from around 60% to 34%. Under standard transmission dynamics, such a shock would have led to a sharp retail price increase.
Yet, unlike most economies, India prevented a full pass-through. Petrol and diesel prices remained largely unchanged, and LPG saw only a limited increase. Moreover, the government claims that it has stabilised LPG prices after having secured an eased supply of it.
The puzzle is, why did such exposure not translate into domestic price instability?
Where India Is Getting Its Supplies From
India’s first line of response lay in supply-side adaptation specifically: a rapid but structural diversification of import sources. Crucially, this was not an ad hoc adjustment but an extension of pre-existing procurement strategies that provided options under crisis conditions.
The United States emerged as a key marginal supplier of LPG, backed by pre-contracted volumes of approximately 2.2 million tonnes per annum, about 10% of India’s import basket. This contractual baseline enabled scaling up without delays owing to renegotiation.
Simultaneously, Russia’s share in India’s crude imports rose to around 45-50 million barrels since the Iran war started, and is expected to be as high as around 2 million bpd. This was sustained through alternative maritime routes, notably the Cape of Good Hope, effectively bypassing Hormuz-related disruptions.
African suppliers, particularly Nigeria and Angola, provided additional crude substitution from the Atlantic Basin. Although these flows were costlier due to longer transit routes, they served as critical buffers in maintaining supply continuity.
Argentina, though a relatively small player, also emerged as a supplementary LPG source. Its contribution was marginal in volume terms but still significant in a tight market.
Even so, constraints persisted. Russia’s LPG export infrastructure limited scalability, while suppliers like Norway and Canada faced logistical rigidities and longer lead times.
The key insight is that India’s resilience did not come from post-crisis improvisation, but from a diversified import portfolio that could be reweighted under stress, including the incorporation of non-traditional suppliers like Argentina.
Naval And Diplomatic Tools
This supply diversification was complemented by maritime and strategic interventions.
With disruptions extending to both Hormuz and the Red Sea, shipping routes were reconfigured around the Cape of Good Hope. This has historically increased transit times by approximately 30% and freight costs by 40-60%, alongside a spike in insurance premiums.
To mitigate these risks, India deployed naval and diplomatic tools. Under Operation Sankalp, Indian naval escorts ensured safer passage for critical energy shipments. Concurrently, selective access through Hormuz was maintained via diplomatic channels, reducing the probability of extreme supply disruptions.
The payoff was clear: while costs increased, physical supply continuity was preserved.
Domestic buffers further strengthened this resilience. LPG production increased by 28%, while piped natural gas (PNG) connections expanded by nearly 2.9 lakh, partially substituting LPG demand at the margin. Strategic petroleum reserves, covering roughly 74 days of consumption, provided an additional cushion.
The Price Containment Plan
However, even with supply secured, global price escalation remained unavoidable. Herein lay the most decisive intervention.
India’s second and arguably more consequential policy response was to decouple global price shocks from domestic retail prices through a combination of fiscal absorption and administrative controls.
The divergence between input costs and retail prices was stark.
Analysts suggest that under full pass-through of global price shocks, the increase could be significantly higher, given the sharp rise in international LPG benchmarks. In reality, prices rose by only about ₹60 (roughly 7%). This gap was bridged through a layered absorption architecture. Oil Marketing Companies (OMCs) bore under-recoveries estimated at ₹40,000 crore, while the government provided compensation of around ₹30,000 crore. Targeted subsidies under PMUY further insulated vulnerable households. The net effect was that most of the price shock was absorbed upstream by public sector balance sheets rather than being transmitted to consumers.
The containment strategy was even more pronounced in petrol and diesel pricing. The government implemented excise duty cuts of ₹10 per litre on both fuels, reduced diesel duties effectively to zero, and imposed export levies to redirect supply towards the domestic market. As a result, retail prices remained largely stable despite elevated global crude prices.
Diesel As A Special Case
This prioritisation is grounded in macroeconomic considerations as diesel is not just a fuel but an input into the entire price system.
First, diesel plays a central role in inflation transmission. It underpins logistics, agriculture, and supply chains, with direct and second-round effects on both the Wholesale Price Index (WPI) and Consumer Price Index (CPI). Containing diesel prices, therefore, mitigates broader inflationary pressures.
Second, macroeconomic stability considerations were paramount. At $120+ crude, a full pass-through would have significantly raised CPI inflation, eroded real incomes and potentially triggered monetary tightening.
Third, diesel’s importance for trucks, which account for approximately 70% of India’s freight movement, and for powering irrigation via diesel pumps and power backup across MSMEs, implies a significantly higher input-output multiplier compared to LPG. Stabilising diesel prices, therefore, compresses inflationary effects across logistics, food prices, and core CPI, delivering disproportionately large macroeconomic gains.
Fourth, excise duty reductions effectively shifted the burden from OMCs to the sovereign balance sheet, preventing financial stress within public sector energy firms.
Can This Last?
Finally, political economy constraints cannot be ignored. Petrol and diesel prices are high-frequency, highly visible indicators of economic distress, creating strong incentives for administrative containment. That said, the system is not impermeable. Private sector players, such as Nayara Energy, adjusted prices upward, indicating that administrative control is partial and contingent on public sector dominance.
India’s response to the 2026 energy shock reflects a coordinated, multi-layered policy framework, where it efficiently re-engineered shock transmission mechanisms. The state intervened at multiple nodes – supply, logistics, pricing, and welfare – to ensure that global volatility was absorbed fiscally rather than passed on to consumers.
Whether this constitutes a policy masterstroke depends on its sustainability. The model is contingent on fiscal space, geopolitical positioning, and continued diversification. Structural risks, particularly a high-import dependence and the vulnerability to Hormuz disruptions, remain unresolved.
India did not escape the shock; it reconfigured how the shock travels through its economy, demonstrating a form of state capacity that is as much fiscal as it is geopolitical.
(Saksham Raj is a research analyst for CNES, O.P Jindal Global University. With research inputs from Archit Sen.)