How India Managed Oil Embargo and Energy Crises of 1973 and 1979

India’s Energy Basket and Import Dependence

• India’s energy demand is met through multiple sources, but coal remains the largest contributor.
• According to the International Energy Agency, coal and coal products account for nearly 48.4% of India’s total energy demand, while crude oil contributes around 24.7%.
• Although coal production is largely domestic, crude oil remains India’s biggest area of vulnerability because domestic production meets only about 13% of demand.
• India’s crude oil import dependence has risen to nearly 88.5% in FY26, making the country highly exposed to global oil market volatility.

Strait of Hormuz and Strategic Vulnerability

The 1973 Oil Crisis and Its Impact on India

• The first major oil shock occurred during the 1973 Arab-Israeli War when Arab members of OAPEC imposed an oil embargo on countries supporting Israel, particularly the United States and Western allies.
• This reduced global oil supply significantly and pushed oil prices up by nearly 70%, from around $3 to over $5 per barrel initially, and later much higher.
• For India, the consequences were severe. The oil import bill rose sharply from nearly $500 million in 1973 to around $1.3 billion in 1974.
• Higher petroleum prices also affected agriculture because petroleum-based fertilisers became expensive and scarce.
• Inflation surged to nearly 20%, economic growth slowed, and the assumptions of the Fifth Five-Year Plan became unrealistic.

India’s Response to the 1973 Oil Shock

• India responded primarily through import control, demand compression, and diplomatic balancing.
• The government reduced petroleum consumption, controlled imports, and increased administrative management of energy use.
• India also strengthened diplomatic engagement with Arab countries to secure stable energy supplies without directly entering bloc politics during the Cold War era.
• There was greater emphasis on public sector control of petroleum and long-term planning for energy self-reliance.

The 1979 Oil Crisis and Its Impact on India

• The second major oil shock came after the Iranian Revolution of 1979, which disrupted oil production in Iran, then one of the world’s major producers.
• Global oil prices rose dramatically from around $13 per barrel in 1979 to nearly $34 per barrel by 1980.
• The crisis struck when the world economy was still recovering from the earlier shock, worsening inflation and recessionary pressures globally.
• India faced a severe Balance of Payments crisis because of rising import costs and foreign exchange pressure.

India’s Response to the 1979 Oil Shock

• India had to approach the International Monetary Fund for financial assistance to manage the external payments crisis.
• The IMF support helped stabilise the immediate Balance of Payments problem but also exposed structural weaknesses in India’s economy.
• This period is often seen as an early step toward the broader process of economic liberalisation that culminated in the 1991 reforms.
• The crisis also pushed India to think more seriously about diversification of energy sources and reducing vulnerability to imported oil shocks.

Lessons for India in the Present West Asia Crisis

• The present geopolitical tensions show that energy security is not only an economic issue but also a strategic national security concern.
• India must avoid overdependence on a single region or supplier, especially when West Asia remains politically unstable.
• Diversification of suppliers, long-term contracts, and stronger strategic reserves are essential to prevent crisis-driven policy responses.
• Energy diplomacy must remain central to India’s foreign policy, especially with Russia, Gulf countries, and emerging suppliers in Africa and Latin America.

Strategic Petroleum Reserves and Energy Diversification

• India has created Strategic Petroleum Reserves (SPR) to store crude oil for emergency use during supply disruptions.
• The current storage capacity is around 5.33 million tonnes, though actual reserves remain below full capacity.
• These reserves act as a national buffer against sudden supply shocks and price spikes.
• At the same time, India is diversifying imports beyond traditional Gulf suppliers by increasing purchases from Russia, the United States, and African countries.

Challenges in India’s Energy Security

• Despite diversification efforts, India remains structurally vulnerable because domestic crude production is low and demand continues to rise.
• Electric mobility and renewable energy transition are progressing, but oil remains critical for transport, industry, and fertiliser production.
• Strategic reserves are still limited in comparison to major economies like the United States and China.
• Global conflicts, shipping disruptions, and sanctions politics continue to create uncertainty in energy planning.

Way Forward

• India must expand Strategic Petroleum Reserves to provide longer emergency coverage.
• Renewable energy, green hydrogen, biofuels, and domestic gas production must be accelerated to reduce long-term oil dependence.
• Improved public transport, fuel efficiency standards, and electric mobility can reduce import pressure.
• At the diplomatic level, India must continue balanced engagement with all major energy-producing regions while protecting maritime trade routes.

Conclusion

The oil crises of 1973 and 1979 showed that external energy shocks can rapidly become domestic economic crises.

India’s experience demonstrated the importance of diversification, strategic planning, and macroeconomic resilience.

In the present West Asia crisis, the lesson remains clear: energy security is not achieved only by buying oil, but by building strategic autonomy, resilient supply systems, and long-term alternatives.