Any geo-political tension has an impact on energy market and so is the case with the recent India-Pakistan tensions. Though not immediate, the impact is inevitable, as the developments raise serious concerns about the movement and supply of crude oil and gas given that both countries are dependent on imported energy.

“While the tensions have wide-ranging and serious humanitarian implications for the region, it also brings to the forefront the importance of emergency preparedness in the energy sector, as a prolonged conflict would severely impact the ability of both countries to meet their energy needs,” according to Rystad Energy’s (Independent energy research company) market update report.

“While India primarily imports crude oil by sea from the Middle East, regional tensions can disrupt key maritime routes. Increased shipping risks and higher freight charges may lead to supply chain disturbances. Additionally, crude oil prices are highly sensitive to geopolitical instability,” Umud Shokri energy strategist and senior visiting fellow at George Mason University said.

Shokri told businesslinethat “Any sustained conflict or threat thereof could trigger price spikes. Considering India imports about 85 per cent of its crude oil, a $10 per barrel increase can widen the current account deficit by roughly 0.5 per cent of GDP, affecting broader economic indicators.”

Complicating the picture for India is the current tensions with Saudi Arabia over crude supply terms and joint refinery projects.

“Saudi Arabia supplies 750,000 to 850,000 barrels per day to India, making it a critical energy partner. Disagreements over pricing and investment commitments—such as the stalled Ratnagiri refinery project—could jeopardize India’s long-term energy security and diversification efforts,” he said.

According to Rohan Goindi, Senior Analyst, Commodities Markets – Oil, Rystad Energy, “In terms of daily crude demand, India consumes 5.4 million barrels per day (bpd), compared to Pakistan’s 0.25 million bpd, according to our analysis. However, the discrepancy goes beyond just demand.”

As tensions escalate, both countries are expected to increase crude procurement and refinery activity. “India’s strategic and commercial reserves can sustain supply for over a month, while Pakistan, which lacks any strategic reserves, has only 20 days’ worth in stock.”

“India has a reserve coverage of approximately seven days, based on its existing strategic reserves and India’s commercial stockpiles of close to 160 million barrels (with the refiners) can sustain the country for around 33 days, whereas Pakistan’s stockpiles will last for 20 days,” he explained.

India’s crude oil stockpile obligations are managed through a combination of government-owned strategic reserves and company-owned commercial reserves (with no fixed legal requirement). Pakistan has a clear regulatory requirement of a 20-day stockpile of refined products, mandated by its Oil and Gas Regulatory Authority (OGRA).

“As the third-largest global crude importer, 85 per cent of India’s demand being met through imports. Pakistan, too, relies heavily on imports, meeting around 78 per cent of its demand,” Goindi said.

On the petrouleum product front, “Diesel demand is likely to rise amid increased military mobilisation, while airline fuel consumption declines as airspace closures lead to rerouted flights, cancellations and soaring airline ticket prices,” Goindi said.

“Diesel exports could decline, but domestic supply is expected to remain stable as this development will allow refineries to shift production from jet fuel to diesel,” he said.

All the Indian refineries have already given assurance for continued supply of refined products.

According to Uttamarani Pati, Analyst, Renewables & Power Research, Rystad Energy, “The suspension of the Indus Water Treaty (IWT) poses a serious energy security risk for Pakistan, with up to 9.3 GW of hydropower capacity — or 90 per cent of its total — at risk due to disrupted water flows from India, our analysis shows.”

Apart from the immediate energy security implications, escalating tensions will also likely endanger investment in long-term projects that are more sensitive to economic instability, such as the Thatta green hydrogen project in Pakistan, he said adding that “Even more mature projects that have already received final investment decisions, such as AM Green Ammonia’s green ammonia plant in Kakinada, India could face supply chain disruption and significant delay.”

The situation will put energy infrastructure at risk, leading to end consumers brearing the brunt.

More Like This

Published on May 11, 2025