Energy Crisis of 2026: Diverging Paths of India and Pakistan Amidst Geopolitical Turmoil
The Energy Crisis Unfolds
As we enter early 2026, a significant energy crisis has emerged, primarily fueled by the intensifying conflict involving Iran, the United States, and Israel. This situation, referred to as "Operation Epic Fury," involves coordinated military actions by the US and Israel targeting Iranian assets, which has prompted Iran to retaliate and effectively close the Strait of Hormuz. This strategic waterway is crucial, facilitating the transit of approximately 20% of the world's oil and liquefied natural gas (LNG).
The closure has resulted in a dramatic increase in global crude oil prices, with Brent crude exceeding $90 per barrel and peaking at $114 by March 9, 2026. This represents a staggering weekly increase of 23–30%, the highest since the pandemic's onset. The repercussions of this crisis are being felt across economies reliant on imports, leading to heightened inflation and budgetary pressures. In contrast, India has managed to keep retail fuel prices stable, while Pakistan has had to implement unprecedented price hikes, showcasing differing approaches to oil import strategies, reserve management, and fiscal policies.
Global Implications of the Crisis
The Strait of Hormuz is a narrow passage that connects the Persian Gulf to the Arabian Sea, handling around 21 million barrels of oil daily, which accounts for one-fifth of global consumption. Following the US-Israeli strikes, Iran announced the closure of this vital strait on March 2, 2026, leading to attacks on commercial vessels and a significant slowdown in maritime traffic, raising concerns about prolonged supply shortages.
By March 7, numerous tankers were left anchored outside the strait, insurance rates surged, and major shipping companies halted their operations. This situation has escalated refining costs and global oil benchmarks, with analysts cautioning that sustained prices above $90 per barrel could exacerbate current account deficits and trigger inflation worldwide. The crisis is particularly severe for South Asia, where both India and Pakistan import over 80–85% of their crude oil, heavily relying on Middle Eastern suppliers that transit through Hormuz. However, India's proactive diversification and substantial reserves have shielded consumers, while Pakistan's greater dependency has resulted in immediate financial strain.
India's Strategic Resilience
As the third-largest oil importer globally, India has successfully navigated the crisis without increasing petrol or diesel prices, which have remained unchanged since April 2022. Government officials credit this stability to several key factors.
Import Diversification: Before the crisis, approximately 52% of India's crude imports passed through Hormuz, but strategic shifts have reduced this figure. By March 2026, India increased its non-Hormuz sources from 60% to 70%, sourcing more from Russia, the United States, West Africa, Venezuela, and Latin America. A temporary US waiver allowed continued purchases from Russia, helping stabilize costs amidst discounted barrels.
Strategic Reserves: India has strategic petroleum reserves that cover 9.5 days of net imports, along with commercial stocks that last up to 74 days for crude and eight weeks for refined fuels. Facilities in Visakhapatnam, Mangaluru, and Padur provide a buffer, enabling the government to manage short-term disruptions without passing costs onto consumers.
Fiscal Measures: The government has managed volatility through adjustable excise duties, aiming for 20% ethanol blending by 2026, and engaging in negotiations with suppliers like Qatar, the UAE, and Saudi Arabia. The partial resumption of Hormuz cargo by March 7 has further alleviated pressures. However, LPG prices did see an increase of ₹60 per 14.2-kg cylinder on March 7, indicating vulnerabilities in cooking gas reserves.
Pakistan's Economic Struggles
In stark contrast, Pakistan, which imports 70–80% of its crude through Hormuz, has directly transferred the crisis costs to consumers, implementing a historic 20% fuel price increase on March 7, 2026. Petrol prices surged by PKR55 to PKR321.17 per litre, diesel to PKR335.86, and kerosene by PKR130 to PKR318.81, leading to panic buying and fears of a second wave of inflation.
Heavy Import Reliance: Pakistan's energy imports, mainly from Saudi Arabia and the UAE, are highly vulnerable to disruptions in Hormuz, with limited diversification options. The monthly oil bill could escalate to $600 million, with every $5 increase in crude prices adding $1 billion annually to imports, further widening deficits and putting pressure on the rupee.
Limited Buffers: National reserves cover only 26–28 days, significantly less than India's, resulting in strained supplies and the need for weekly price adjustments. Economic constraints, including IMF conditions that limit subsidies, compel the government to pass costs directly to consumers.
Broader Economic Fallout: The price hikes coincide with Ramadan, intensifying public discontent and posing risks to transport, logistics, and food prices, potentially impacting GDP growth and increasing social unrest.
Diverging Strategies: A Comparative Analysis
The differences in outcomes can be attributed to varying levels of preparedness and policy adaptability. India's long-term focus on diversification, including increasing shares from the US and Russia, along with strategic petroleum reserve investments made since 2003, have provided a cushion that Pakistan lacks. India's stronger economic position allows it to absorb costs, while Pakistan's fiscal challenges, including a $12.7 billion annual energy bill, necessitate price hikes. As of March 2026, petrol prices in Pakistan (PKR321 per litre) are roughly equivalent to India's ₹100 per litre, but when adjusted for purchasing power, the impact is more severe in Pakistan, where poverty is widespread.
Future Outlook: Lessons and Challenges
India's approach highlights the importance of long-term planning, but ongoing conflict could test its limits, potentially necessitating adjustments similar to those seen in LPG prices if crude reaches $120. For Pakistan, accelerating the adoption of renewables, electric vehicles, and diversification strategies could help mitigate future shocks. As the situation develops, both countries illustrate the intersection of geopolitics and energy security, emphasizing the urgent need for global diplomatic efforts to restore stability.