West Asia war has a crude lesson for Indian economy: Cut the oil imports

Mumbai: The ongoing West Asia conflict has highlighted India's structural vulnerability to energy shocks, reinforcing the need to reduce dependence on imported crude and accelerate efforts to strengthen energy security, according to an external member of the RBI's rate-setting panel.

Nagesh Kumar, who is the director of the Institute for Studies in Industrial Development and also a part of the Monetary Policy Committee, said the Indian approach needs to focus both on stepping up oil exploration domestically and hastening the transition to alternative sources.

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"The high dependence on imported crude makes the Indian economy highly vulnerable to volatility in the hydrocarbons market. While India's macroeconomic fundamentals remain resilient, and the Indian economy will continue to remain the fastest growing major economy with a growth rate of nearly 7 per cent in 2026-27, it is time to prioritise energy security and resilience for sustaining the accelerating economic growth trajectory," Kumar said in an interview with PTI.

The West Asia crisis has impacted the economy through multiple channels, including higher import bills, pressure on the rupee, and rising input costs for industries. The blockage of key supply routes has further aggravated concerns, pushing crude prices higher and complicating the inflation and growth outlook.

Kumar noted that India imports a significant portion of its crude oil and natural gas requirements, making it highly sensitive to geopolitical developments in West Asia.

Kumar emphasised that the crisis should serve as a wake-up call for long-term policy action, which should include stepping up domestic exploration of oil and gas, expanding strategic petroleum reserves, and accelerating the transition towards alternative and cleaner energy sources.

"The West Asia crisis has helped to highlight the criticality of reducing the dependence on imported crude through greater investments in exploration--offshore as well as onshore--, building larger strategic reserves, greater electrification or transitioning towards electricity for fuel requirements in factories and homes, and accelerating the clean energy transition," Kumar said.

The recent spike in prices is expected to widen the current account deficit and add to inflationary pressures, even as domestic demand remains relatively robust.

The situation has also affected sectors such as MSMEs, especially those dependent on natural gas as a fuel, while broader economic sentiment has weakened amid global growth concerns.

In response, the government has taken steps to mitigate the impact, including diplomatic efforts to stabilise supplies and fiscal measures such as excise duty cuts to contain retail fuel prices.

Greater electrification of industrial and household energy consumption, along with investments in renewable energy, are seen as critical to reducing exposure to global hydrocarbon volatility.

At the same time, improving energy efficiency and diversifying import sources could enhance resilience against future shocks.

Kumar also underlined the importance of leveraging recent trade agreements to boost exports, which could help offset external imbalances arising from higher energy imports.