West Asia wake-up call: here’s what India should do to address its energy vulnerability on the double

Then there is liquefied petroleum gas (LPG). When availability is stretched, households and small enterprises experience the shock through queues, delayed refills and rationing.

Progress on diversification is undeniable. In recent years, India has expanded supplier options for oil. But diversifying suppliers reduces bilateral dependence; it does not eliminate vulnerability to global price formation, shipping risk premia or chokepoint disruptions. While diversification is necessary, it is not energy security.

It is the foundational failures we must focus on.

First, domestic supply. After a production surge in the 1980s and 90s, the upstream sector has languished. For roughly two decades, India’s oil output has remained below 0.8 million barrels per day, never achieving a scale that meaningfully changes import dependence. With inert domestic supply, higher imports can mean macro stress.

In 1996, at the Lovraj Kumar memorial lecture, I argued that a central goal must be to ensure that hydrocarbons are available at a steady rate at minimum cost with maximum supply security.

I argued that India’s exploration intensity was low, many basins remained unexplored and that we needed competition in exploration and production acreage, with greater private participation, including collaborations with global oil companies.

We have not pursued that agenda with urgency and continuity. Policy reform has often been episodic: announced, debated, diluted and then revisited.

This is where we must be blunt. If domestic oil and gas production has languished, we should not treat it as fate. It reflects incentives, stability, contracting confidence and the state’s ability to carry a long-term programme beyond political cycles. In 2014, in a report submitted to the ministry of petroleum and natural gas, I and others argued for a regime that rewards exploration, reserve creation and sustained production.

A production sharing contract (PSC) regime is the appropriate contractual framework for India, but we must not sabotage it with micromanagement. A PSC aligns risk with reward when geology and costs are uncertain; with returns linked to profitability, rather than gross revenue, the government’s slice can rise progressively with profits.

Revenue sharing contracts may appear simpler, but they force bidders to price geology, costs and future prices up front; in uncertain basins, this encourages either conservative bids or aggressive bids followed by underinvestment. But even a well-crafted PSC would fail if the state apparatus cannot resist discretionary approvals, delays and adversarial oversight, as seen before.

If we want investment, we must offer stable terms and predictable administration, with prudential technical oversight and ex-post fiscal audits by revenue authorities (instead of the directorate general of hydrocarbons), not a system riddled with endless ex-ante approvals.

Mexico offers an illustration of the practicality of a PSC when paired with credible institutions: by May 2022, production from post-reform contracts had hit 101,000 barrels a day of crude oil (about 6% of national output), and by mid-2023 Mexico had 108 valid exploration and production contracts, including 34 under a production sharing model.

Second, given that this is often described as the ‘gas century,’ we must plan for route redundancy and gas infrastructure. In that 1996 lecture, I had argued in favour of a cross-country gas network to provide a safety net for energy security, and for pursuing import options, including an offshore deep-water India-Oman pipeline, with Oman as a hub and gas sourced from multiple Gulf producers, thus supplementing other routes.

One can debate the commercial feasibility of any single corridor, but the strategic point is larger: energy security requires redundancy built by patient capital and institutional stamina.

India’s renewables push, especially solar, is commendable. However, it offers no insurance against hydrocarbon shocks, at least not yet. Oil still drives mobility, freight, aviation and petrochemicals in India. Gas still matters for industry. A durable transition must strengthen supply chains.

If this crisis is to be more than an expensive lesson, India needs an energy security doctrine executed with long-term vision beyond political affiliations. It should include four commitments: real scenario planning, with cross-ministry playbooks for oil, liquefied natural gas and LPG disruptions; upstream as national infrastructure; redundancy by design; and renewables with durability.

West Asia will stay volatile and its chokepoints narrow. Those are constants. The variable is whether India treats energy access as procurement or recognizes it as a key aspect of economic strategy.

The author is vice president, Pune International Centre and former secretary, ministry of petroleum and natural gas.