Steady In the Storm: India navigates oil shock and an uncertain Middle East

IN FEBRUARY 2020, AS Covid cases began to be detected in increasing numbers, the central hall of Parliament was gripped with a sudden scare. News spread that an MP, who had just the other day mingled with several people, was down with Covid. The cavernous hall in the old Parliament building, usually a hub of political talk, saw MPs and mediapersons urgently recalling whether they had met the MP who contracted the virus. Attendance in Parliament thinned rapidly, and a few days later, the prime minister announced a nationwide lockdown.

The decision to bring normal activity to a grinding halt was tough but necessary. The overall number of infected persons was small but growing at an alarming pace, and India lacked the testing kits and PPE (personal protective equipment) suits needed by medical personnel to attend to highly infectious patients. Aware that the virus was being transmitted mostly through international travellers, the government focused testing on high-risk groups rather than opting for widespread sampling that would have spread resources thin.

Despite criticism, the government stood its ground, even as hos­pital capacity and production of PPE suits were ramped up at warp speed. When the anti-Covid vaccine was ready for use, a similar decision was taken to begin vaccinating the most vulnerable, such as the elderly and those with compromised immunity. The entire exercise hinged on just-in-time delivery of vaccine and medical resources as Covid cases spiked and patients crowded hospitals. The learnings from the Covid pandemic proved useful when a very different—but equally demanding—crisis blew up almost exactly six years later. The American and Israeli attacks on Iran and the subsequent closure of the Strait of Hormuz abruptly choked off India’s energy pipeline from the Middle East.

AGAIN, AS DURING Covid, the challenge was deciding which section of the population needed more protection. Aware that shortages of cooking gas for home use could trigger mass panic, the government decided that com­mercial and catering establishments could wait but households could not. The strategy was aimed at easing fears that the domes­tic “chulha” or stove would shut down and there would be no food on the table. Already, videos of lines outside cooking gas retailers were doing the rounds, and there was concern over social media telegraphing the “bad” news. The decision to ramp up domestic production of cooking gas and prevent any disruption in the retail chain was crucial as the public panic subsided in a week or so. The government initiated a multi-ministry daily media brief­ing—as was the case during Covid—to address public anxieties. Sujata Sharma, joint secretary in the Ministry of Petroleum and Natural Gas, repeatedly assured that the delivery cycle for a cook­ing gas cylinder remained two-and-a-half days. To encourage judi­cious use of cooking gas and ensure better supply management, a replacement booking could not be made before 25 days, a marginal increase from the earlier 21 days.

There was no hike in pump rates for petrol and diesel, and the first revision happened only on May 15. The crisis in the Middle East coincided with intense electoral battles in Assam, Tamil Nadu, Kerala, West Bengal and Puducherry, and the government was accused of delaying price hikes for political considerations. The expectation that an office party would wilfully damage its own prospects during an election was always unrealistic, but the government did take a few steps to protect the finances of oil com­panies. An excise duty cut of ₹10 per litre for petrol and diesel on March 27 added to a revenue hit of more than ₹1 lakh crore. The government’s effort was directed at protecting consumers from savage increases in fuel and cooking gas costs, which would cause distress and impact consumption. Oil marketing companies did their version of just-in-time deliveries, carefully mapping sale volumes and geographical distribution of population almost on a pump-to-pump basis. The decisions were complemented by an urgent diversification of oil and gas purchases, while the suspen­sion of sanctions on Russian oil was an unanticipated bonus.

Addressing a public meeting on July 4 at the inauguration of a HPCL Rajasthan Refinery Limited (HRRL) plant, Prime Minis­ter Narendra Modi said, “India took potent decisions, made cor­rect evaluations, charted effective strategies, used its domestic resources effectively and constructively leveraged its diplomatic power to successfully weather the challenges.” As the fragile truce—despite the continuing hiccups—between the US and Iran held out hopes of oil and gas flowing through the Hormuz, Modi understood the need to explain how India managed the crisis. He thanked people for responding to his call to reduce dis­cretionary foreign travel and economise on fuel expenses that cost dollars and said: “New India does not step back from its resolve or slow down its pace of development irrespective of the immensity of the challenge.” Precise assessments of the war in the Middle East were backed by hard-nosed diplomacy. With India relying on imports to meet 60 per cent of its LPG needs, domestic refiner­ies were reconfigured within seven days to divert gas meant for industrial use to domestic cooking gas. The price of cooking gas cylinders could have rocketed to ₹2,000 but remained ₹950 for regular customers and ₹650 for Ujjwala beneficiaries.

Modi attacked the opposition for seeking to spread panic and pointed out that the previous Congress government in Rajasthan refused to cooperate in setting up the refinery he was inaugurating. There was a standstill from 2018 to 2023, and things changed only when the Bharatiya Janata Party (BJP) returned to office in the state. He pointed to the impressive rise in India’s refinery capacity, cur­rently the fourth largest in the world, which saved additional costs. Modi detailed how India strategically leveraged its diplomacy to expand its fuel import base from just 25-26 countries to over 40 na­tions. “India delivered a crystal clear message to the entire world that for us, the national interest and the welfare of our citizens remain completely paramount,” he said. Severe fertiliser shortages due to the Ukraine war drove global urea prices above ₹3,000 per bag, but the government absorbed the burden of higher subsidies and asked embassies to secure alternatives while promoting natural farming at home. The Emergency Credit Line Guarantee Scheme (ECLGS) to provide working capital to MSMEs—another Covid-time initia­tive—facilitated an additional 20 per cent loan from banks backed by a 100 per cent government guarantee. “It is the direct result of such financial interventions that our small and large industries are feeling completely secure,” Modi said.

The prime minister’s references to In­dia’s diplomacy are relevant in the context of criticism of India’s cautious reaction to the death of Iranian leader Ali Khamenei in the US-Israeli attack on February 28. While hindsight can offer clearer vision, the out­come of the conflict—that Iran would hold down the US to a draw—was hardly evident. An evolving situation requires tactical ad­justments, and while Foreign Secretary Vikram Misri signed the condolence reg­ister at the Iranian embassy in New Delhi only on March 5, both sides understood the compulsions at work. The Iranians let the matter slide, recognising that India had not offered any assistance to its attackers and had its interests in the Gulf region. At a time when Iran was at war with the US, picking more fights did not make sense either. As for India, a watch and wait policy was more prudent than offering homilies on a conflict it was in no position to influence. “We had no role in the war and no role in ending it. Our task was to manage the fallout of the war as best we could,” said a senior BJP leader. India’s approach did not fundamentally alter the big goals and markers of its foreign policy, even if there were course corrections along the way. Though the bickering and sporadic exchange of fire between the US and Iran continue, the possibility of a more durable rapprochement, as unlikely as it may seem, between the two sworn enemies cannot be ruled out. As it is, the lifting of sanctions on Iran’s oil on August 21 during the war was hardly an anticipated outcome. “The point is that while India has interests in all regions, they are not equal. What happens in the Gulf influences India the most. This is also a region which does not compete with India. The Gulf can buy Indian products and use our manpower and has surplus resources that can be invested in India,” Syed Akbaruddin, former diplomat and currently the dean of Kautilya School of Public Policy, told Open. There are, of course, reasons to pursue relations with Iran, which is important for India’s access to Central Asia. Also, despite Islamabad’s role in peace talks, Iran and Pakistan have had their share of differences.

Yet, Iran’s attacks on Gulf nations hurt Indian interests directly in a region best described as India’s “near West.” While the impor­tance of the immediate neighbourhood cannot be discounted, India competes with Bangladesh, Sri Lanka and even Pakistan in the export of manpower, cotton, textiles and leather goods. The scope for economic cooperation with the Gulf region is vast. India has free trade agreements with the United Arab Emirates and Oman, and there is a strong case for concluding one with the Gulf Cooperation Council (GCC) countries as a whole.

The case for linkages has gained traction with America’s ac­tions making it evident that the US-led security order, on which Arab states and even Egypt depended, is no longer a given. The US is very likely to pursue great power policies that do not factor in the impact—let alone concurrence—of allies and partners. The prevail­ing situation opens the doors for powers like Saudi Arabia and Turkey to explore a role for themselves, and the same goes for India. The war has shown that holding the US to a stale­mate, as Iran did by attacking the Gulf states and blockading the Strait of Hormuz, is as good as a win. Despite the seemingly clumsy American diplomacy, US President Donald Trump did realise that things were not getting better and found a way to end the war.

With possible access to Iranian oil, In­dia’s options may have improved despite Pakistan exploiting a tactical opening to present itself as a “mediator” and enhance its status. Banking on Trump’s “goodwill” is a dicey proposition, and on the other hand, the power differential between India and Pakistan continues to grow.