The Middle East war has caused a severe economic ripple effect in India, leading to the closure of over 400 ceramics factories in Morbi and a significant reduction in rice mill operations in Karnal. Nearly 400,000 workers have left their jobs for their hometowns due to these business disruptions. The crisis is also driving up restaurant costs in Delhi and creating concerns about the stability of LPG and fuel supplies. Prime Minister Narendra Modi initially urged citizens not to panic but soon acknowledged the gravity of the situation as the war persisted.
India imports 88% of its crude oil, 60% of its LPG, and 45% of its natural gas, mostly from the Gulf region. This reliance makes India the world's third-largest oil importer, with an annual import bill that exceeds its entire defense budget. Crude oil is essential, as it's processed in refineries into various vital fuels like petrol, diesel, and aviation turbine fuel. Any disturbance in the Gulf could directly increase the costs of everything from airline tickets to city transport.
The Strait of Hormuz is a narrow waterway through which about a third of the world's globally traded oil and natural gas is shipped. It connects major Middle Eastern producers like Saudi Arabia, Iraq, and Qatar with the global market through its 20 million daily barrels. Iran's control over this strategic route has historically led to political tensions and threats, including from the US, which could significantly affect global oil prices. The difficulty in navigating around this passage makes global energy markets highly vulnerable to any local conflicts.
Iran exerts control over vessels transitioning through the Strait of Hormuz by essentially operating a toll system within its territorial waters. Ships, particularly those not aligned with Iranian interests, sometimes resort to "zombie ship" identities by using old classifications to avoid detection or seizure, especially by the US Navy. Despite regional tensions, some nations' vessels, including those from China and India, have managed to navigate the strait peacefully. This ongoing dynamic demonstrates Iran's strategic leverage over a key node of the global economy.
To mitigate the energy crisis caused by the conflict, Prime Minister Modi has actively engaged in diplomacy with Iranian leadership to secure Indian energy interests. The Indian Navy launched Operation Urja Suraksha to safely escort energy tankers through the troubled Gulf of Oman. Although India has had some success in maintaining flows, including importing Iranian oil under special US approval, ordinary citizens continue to struggle with energy shortages. The Indian stock market has also suffered greatly, losing massive value as investor confidence wavered.
The shortage of LPG has reached a critical stage in India, where millions of households rely on it for cooking, leading to families returning to their rural homes and schools lacking fuel for midday meals. In many cities, a black market for LPG has emerged, causing prices to soar to five times their normal rate. Businesses like Surat's textile factories have been forced to halt operations because they cannot source necessary fuel. The government is absorbing some of these increased costs to protect domestic householders, but the financial strain is immense and affects national tax revenues.
In response to unstable imported fuel supplies, the Indian government is encouraging a long-term shift toward domestic energy sources like coal, solar, and wind. The goal is to reach 30% electric vehicle penetration by 2030 and to push for household adoption of induction cooktops. Unlike oil and gas, most of India's electricity is produced internally, making it a more secure energy option. While these shifts are essential for national security, India still faces challenges like the lower quality of domestic coal and the need for massive infrastructure investment.