India’s energy security faces its sternest test in decades. The West Asia conflict has effectively closed the Strait of Hormuz, a chokepoint that previously handled roughly 20% of global oil trade and a significant portion of India’s crude imports. This disruption has forced a dramatic operational pivot. Before the war, about half of India’s crude imports flowed through the Strait. Today, refiners have increased non-Hormuz sourcing to approximately 70% of total imports, up from 55% pre-conflict. This shift is driven by three factors: US waivers enabling Russian crude purchases, African supply rising to a four-year high, and the near-total collapse of Hormuz-transiting flows.
The cost of this resilience is staggering. Freight rates have jumped 10–15 times, war-risk insurance has ballooned from thousands to nearly a million dollars per vessel, and crude premiums have surged to $20–$30 per barrel from just a few dollars pre-conflict. India’s integrated refiners need crude prices around $80–$85 per barrel to break even, but Brent touched $108 in April 2026, creating severe margin pressure. State refiners are reportedly losing about 100 rupees per litre on diesel and 20 rupees on gasoline.
Indian refiners are betting heavily on a "Trump put"—the expectation that President Donald Trump will intervene to prevent a full-blown supply crunch or sustained price spike. This confidence stems from Trump’s recent pattern of offsetting oil supply disruptions by opening alternative supply routes. When the conflict pushed prices above $100 per barrel, Trump waived sanctions on Russian and Iranian oil, effectively opening alternative routes when the Strait of Hormuz closed.
"If one route closes, he would open another," one executive noted. The political calculus is clear: Trump would not want a price spike ahead of the US midterm elections. If prices begin to spiral, he could pause military action, declare operational objectives achieved, or signal progress toward a durable agreement with Iran. This pattern of intervention has created a unique dynamic where refiners are adjusting their hedging strategies, often reducing hedge ratios and relying on shorter-duration contracts, betting that severe supply disruptions are unlikely.
A crucial, albeit temporary, buffer for Indian refiners has been China’s dramatic pullback from the market. China’s crude imports have fallen 35–40% below 2025 averages, with seaborne imports dropping to roughly 6.78 million barrels per day in May 2026, the lowest since 2016. This absence of the world’s largest crude buyer has freed up substantial volumes, preventing prices from spiraling even higher despite an 8 million barrel per day structural supply loss from the Middle East.
However, this cushion is fading. China lifted fuel export restrictions in early July 2026, a move expected to support higher refinery runs and crude imports. As Chinese refiners increase runs to support product exports, they will compete more aggressively for available crude, particularly from discounted sources like Russian and Iranian crude. A rebound in Chinese buying could rapidly tighten Asian oil supply and put upward pressure on prices, eroding a key advantage Indian refiners have enjoyed during the crisis.
Russian crude has become a double-edged sword for Indian refiners. On one hand, it has been a lifeline. In March 2026, Russian Urals surged to a record 47–50% of India’s imports, replacing lost Gulf supplies. On the other hand, the economics have turned sharply negative. Deep post-2022 discounts of $9–13 per barrel that masked technical inefficiencies have evaporated. Urals discounts narrowed to ~$4.80/bbl or even turned into delivered premiums of $4–5/bbl in tight windows.
Without this economic shield, the pre-2022-style penalties have re-emerged. Indian PSU refineries, optimized for Gulf medium-sour grades, face yield misalignments and higher processing costs when running Russian Urals. This has contributed to margin compression, with Reliance Industries reporting a 9% drop in March-quarter profit and Mangalore Refinery & Petrochemicals reporting a steeper 68% year-on-year decline.
Indian refiners are navigating a classic trade-off between inventory carrying costs and supply security. India’s crude oil inventories have declined approximately 15% since the conflict began, dropping from 107 million barrels to 91 million barrels according to Kpler. This represents a strategic drawdown rather than a crisis, as refiners have maintained steady processing levels despite reduced import volumes.
The government estimates existing crude reserves can meet up to 60 days of national consumption, though this includes crude cargoes currently loaded on ships headed to India and pipeline inventories. Commercial estimates suggest current inventories cover roughly 18 days of demand based on India’s daily consumption of 5 million barrels. This buffer has allowed refiners to bridge supply shortfalls, but analysts caution that refiners may eventually be forced to lower processing rates if supply disruptions persist.
The most significant structural change has been the accelerated diversification away from Gulf suppliers. India has expanded its supplier base from 27 countries in 2006-07 to 40 countries today. Russia’s share of India’s crude import volumes rose from 21.6% in FY2022-23 to 35.8% in FY2024-25, while the percentage of imports from Persian Gulf countries declined from 63% to 46%.
This diversification creates geographic risk dispersion. Russian oil shipped through the Mediterranean, Suez Canal, and Red Sea reaches India’s west coast, bypassing West Asian sea routes entirely. Contracted supplies from non-Gulf producers provide supply security that spot market purchases cannot match, with fixed volume commitments and price formulas that reduce volatility. However, this comes at a cost—shipments from the Americas take 25–40 days compared to 7 days for Gulf crude, adding freight and latency costs.
The situation remains fluid. Brent crude has shown significant volatility, rallying from a low of $71.94 on July 6 to $84 by July 17, 2026. The Trump administration’s strategy of opening alternative supply routes when one closes has introduced a new variable into market pricing, potentially reducing the risk premium priced into Brent futures but also creating uncertainty about the duration of policy interventions.
For Indian refiners, the path forward requires balancing immediate operational challenges with long-term strategic investments. This includes refinery modifications to handle a wider range of crude grades, expansion of strategic petroleum reserves, and continued diversification of supply sources. The experience gained during this crisis is likely to inform future investment decisions in refining capacity, infrastructure, and supply chain management for years to come.
