India's energy security tied to Middle East geopolitics despite diversification: CII-EY study

India will remain heavily reliant on liquid fuels for decades to come, driven by a rapidly expanding industrial base, robust economic growth and rising mobility demands, and its long-term energy security will continue to be shaped by geopolitical developments in the Middle East, despite efforts to diversify supplies, according to a joint study by the Confederation of Indian Industry and EY India.

The August report, titled "India's energy security in a volatile world: Independence, efficiency and resilience" said that while India is projected to become the world's second-largest net oil importer by 2050 — after China — with net imports poised to inch toward 10 million barrels/day, the Middle East is expected to remain the world's largest net oil exporting region through 2050, supplying an ever-increasing share of internationally traded crude oil.

"India's energy security remains closely linked to developments in the Middle East, even as the country has diversified its hydrocarbon sourcing in recent years. As the center of global oil demand shifts toward Asia while export capacity remains concentrated in the Middle East, India's energy security will continue to be closely influenced by developments in international oil markets, geopolitical stability and global supply chains," the report said.

The Middle East supplied as much as 65% of India's crude oil imports before the Russia-Ukraine war began, but its share fell below 50% in fiscal year 2024-25 (April-March) as imports from Russia rose significantly.

"The Middle East will continue to anchor global oil supply as India's import requirement grows," the report added.

Unlike several advanced economies, where oil demand is expected to plateau or decline, India's continued reliance on liquid fuels in hard-to-abate sectors is expected to sustain significant crude oil import requirements over the coming decades, the report said.

India's hydrocarbon procurement strategy has evolved significantly over the past decade, reflecting changing global energy markets, geopolitical developments and a deliberate effort to diversify import sources, it added.

"The transformation has been particularly pronounced in crude oil imports. The changing composition demonstrates India's ability to adapt procurement strategies in response to evolving market conditions while balancing cost, supply security and geopolitical considerations," the report said.

Domestic production, strategic reserves

Domestic crude oil production declined slightly to 25.7 million metric tons in FY 2025-26 from 28 million mt in FY 2020-21, while imported crude rose to 246.4 million mt from 193.8 million mt over the same period. Consequently, the share of imported crude in total crude processing increased to 90.6% in FY 2025-26 from 87.4% in FY 2020-21, indicating that nine out of every 10 barrels of crude processed in India are now sourced from international markets.

"The trend highlights the growing importance of secure and diversified crude procurement strategies in maintaining supply security and supporting economic growth," the report said.

The report added that strategic petroleum reserves will form an important component of India's energy security architecture by providing a dedicated emergency stock of oil that can be deployed during periods of supply disruption.

"As India's petroleum consumption increases and crude oil imports continue to account for a significant share of domestic demand, strategic petroleum reserves provide an additional layer of security by enhancing the country's ability to manage short-term supply disruptions while supporting continuity of refinery operations and fuel availability," the report said.

It added that India's energy transition is unfolding alongside sustained growth in petroleum consumption, underscoring the continued importance of liquid fuels across transport, industry, petrochemicals and other economic activities.

Total petroleum products consumption increased to 243 million mt in FY 2025-26 from about 123 million mt in FY 2006-07, nearly doubling over the past two decades. Growth has largely been underpinned by rising economic activity, increasing freight movement, expanding vehicle ownership, growth in aviation demand and continued industrialization.

"Despite short term fluctuations, the long-term trajectory remains firmly upward, reflecting the continued role of petroleum products in supporting India's economic growth and development," the report said.

The transport sector remains the dominant consumer of petroleum products, accounting for about 57% of total petroleum consumption in FY 2024-25. Alongside transport, petrochemical and non-energy applications, with 15% share, and industrial uses, with 13% share, constitute major demand centers.

"While petroleum products remain critical across several end-use segments, their role is increasingly concentrated in sectors where commercially viable alternatives are either limited or still emerging," the report said.

Evolving demand pattern for petroleum

In FY 2025-26, LPG accounted for about 54% of petroleum product imports by value, making it by far the largest imported petroleum product.

"The predominance of LPG imports reflects strong demand from households and commercial consumers, while imports of fuel oil, petcoke and lubricants underscore the continued reliance of industrial and infrastructure sectors on petroleum-based products," the report said.

"Taken together, these trends indicate that India's dependence on imported petroleum extends well beyond transportation fuels. Growing demand from the residential, commercial, industrial and infrastructure sectors continues to support petroleum consumption despite rapid progress in renewable energy and electrification," it added.

While petroleum products continue to play a significant role in meeting the country's energy requirements, the composition of demand has been gradually changing. Petroleum consumption is increasingly concentrated in transport, industrial and petrochemical applications, while its role in sectors such as agriculture and power generation has declined significantly as electricity has become more accessible, reliable and cost-effective.

Between FY 2005-06 and FY 2024-25, the combined share of agriculture and power generation in petroleum consumption declined from nearly 9% to less than 1%, reflecting the impact of grid expansion, rural electrification, improved power supply and increasing renewable energy deployment.

"These trends suggest that the next phase of India's energy transition will be increasingly shaped by the expanding role of electricity across end-use sectors. The ability of the power sector to provide affordable, reliable and increasingly clean electricity will play an important role in supporting energy security, economic competitiveness and long-term decarbonization objectives," the report said.