Global Oil Tensions Ease: India Likely to Roll Back Emergency Fuel Controls as Strait of Hormuz Stabilises

Global Oil Tensions Ease: India Likely to Roll Back Emergency Fuel Controls as Strait of Hormuz Stabilises​

The government is poised to review and gradually ease the emergency energy security measures introduced in response to heightened geopolitical tensions in West Asia. This move comes following the release of an interim agreement signed by US and Iranian presidents aimed at ending their 111-day war.

These precautionary restrictions, which include stricter monitoring of LPG supplies and prioritized domestic natural gas allocations, were put in place to protect domestic energy availability amid concerns over potential disruptions to global oil and gas supply chains. The official noted that the measures will be reviewed once confidence is regained that the international situation has normalised.

Implications of US-Iran Agreement for Indian Energy Security​

The agreement between the United States and Iran holds significant relief prospects for India, which is one of the world's largest crude importers. This pact could potentially reopen or normalise shipping through the Strait of Hormuz. The narrow waterway between Iran and Oman handles approximately a fifth of global oil consumption.

Since the start of the Iran war in late February, the supply of crude oil and natural gas through this critical passage was disrupted. This disruption immediately triggered sharp increases in both crude oil prices and shipping insurance premiums. Stabilisation and reduction in tensions are expected to help stabilise global energy markets.

Review of Emergency Fuel Supply Management in India​

India, a major consumer and the world's third-largest oil importer, implemented a series of contingency measures after the escalation of hostilities in West Asia. These actions were designed as precautionary safeguards to preserve strategic fuel stocks and ensure uninterrupted energy supplies.

Authorities under the invoked LPG (Supply and Distribution Regulation) Order were directed to closely monitor inventories and prevent the diversion of domestic cylinders. Measures included enforcing minimum intervals between LPG cylinder bookings to curb stockpiling and monitoring retail outlets for abnormal demand patterns.

Reprioritisation Framework for Natural Gas and Refiner Directives​

The Ministry of Petroleum and Natural Gas initiated a specific reprioritisation framework for domestic natural gas supplies. This framework placed city gas distribution networks serving households and transport, as well as the fertiliser sector, ahead of less critical industrial consumers in case of supply disruptions.

Refiners were simultaneously asked to maximise LPG production by diverting streams previously used for petrochemical production. To manage consumer usage, regulations were tightened, including increasing the refill booking period and cutting supplies to commercial users such as hotels and restaurants.

Price Movement Trends and Economic Strain​

Despite the easing diplomatic tensions, retail fuel prices continue to reflect past volatility. Global oil prices hovered around USD 78 per barrel on Thursday, while they had previously peaked at up to USD 119 per barrel during the war-related disruption.

The government had intervened significantly in March 2023, slashing excise duty on petrol and diesel by Rs 10 per litre each to temper retail price hikes. Later increases saw retail petrol and diesel prices rise by approximately Rs 7.50 per litre each, with CNG rates increasing by Rs 6 per kg.

Yet, the contingency measures introduced earlier had an impact on consumer costs. The official stated that oil prices have recently fallen to a three-month low, although state-owned oil companies continue to incur losses of about Rs 550 crore per day as retail rates lag the actual cost.