Page 4 - Policy & Economic Report - July 2025

POLICY AND ECONOMIC
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Impact on India's Oil & Gas Sector

The Indian oil and gas sector continues to operate in an increasingly complex global environment marked
by geopolitical instability, persistent inflationary pressures, and rising import dependence. These
developments have significant implications for India's energy security, fiscal stability, and long-term
strategy of achieving energy self-reliance.

• Geopolitical vulnerabilities & chokepoint risks:

Continued Middle East disruptions and security threats around critical trade corridors (such as the Strait
of Hormuz and the Bab-el-Mandeb/Red Sea) pose heavy risks to India’s energy security, as the nation
imports nearly 40% to 50% of its crude oil and a vast share of its LNG through these routes. Any disruption
could lead to higher freight and insurance costs, supply delays, and increased crude oil price volatility.

Despite these challenges, India has demonstrated considerable resilience in managing its energy supplies.
The Government, along with oil and gas companies, has successfully diversified crude sourcing across
multiple geographies, maintained adequate strategic and commercial inventories, secured long-term
supply contracts, and adopted flexible procurement strategies to mitigate supply disruptions.
Consequently, India has largely avoided major physical supply shortages even during periods of
heightened geopolitical uncertainty, underscoring the country's improving energy security framework and
crisis management capabilities.

• Wholesale cost pressures & high energy inflation:

Energy continued to be the principal driver of wholesale inflation during June 2026. The Fuel and Power
category registered the highest inflation among all commodity groups, recording a WPI inflation rate of
27.41%, largely driven by higher prices of mineral oils, petroleum products, electricity, and coal. Persistent
energy inflation has widespread implications across the economy:

o Refiners and downstream marketing companies face higher procurement and inventory
costs.

o Energy-intensive industries such as steel, cement, chemicals, fertilizers, transportation,
and manufacturing experience higher production costs.

o Elevated input costs may compress corporate margins, particularly in sectors unable to
fully pass on higher costs to consumers.

o Although retail fuel prices may not immediately reflect international price movements
due to pricing mechanisms, sustained wholesale inflation can eventually influence
broader consumer inflation and monetary policy decisions.

• Contraction in Sub-Core Energy Outputs:

The newly revised Index of Core Industries presents a contrasting picture of India's infrastructure
performance. While sectors such as Electricity, Iron Ore, Steel, and Cement demonstrated healthy growth,
the hydrocarbon sector continued to underperform. During June 2026:

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