Global Oil Markets in Turmoil as Middle East Conflict Enters Second Month
One month into the escalating Middle East conflict, global crude oil markets remain under severe strain, with prices skyrocketing nearly 50% since the United States and Israel launched strikes on Iran on February 28. Tehran's strong retaliatory response has triggered widespread instability, sending shockwaves through energy-dependent economies worldwide.
Price Volatility and Immediate Impact
Oil prices initially surged to as high as $119 per barrel amid heightened tensions involving Iran, before moderating to around $100 per barrel. This dramatic increase has directly impacted fuel prices and supply chains across the globe, creating a ripple effect that threatens economic stability in numerous nations.
India's Strategic Response to the Crisis
India, which imports approximately 88% of its crude oil demand and nearly half of its natural gas needs—much of it routed through the vulnerable Strait of Hormuz—faces mounting pressure. The Centre has intervened aggressively to cushion both consumers and oil companies from the sharp price rise.
Key government measures include:
- Lowering excise duty on petrol and diesel, a decision projected to cost the exchequer Rs 1.3 lakh crore.
- Reducing the special additional excise duty on both fuels by Rs 10 per litre to alleviate losses of about Rs 24 per litre on petrol and Rs 30 per litre on diesel incurred by retailers like IndianOil, Hindustan Petroleum, and Bharat Petroleum.
- Imposing export duties of Rs 21.5 per litre on diesel and Rs 29.5 per litre on aviation turbine fuel (ATF) to curb windfall gains.
The government has emphasized that alternative arrangements are being activated to reduce dependence on imports, particularly from the Middle East. Despite strategic reserves sufficient for up to 74 days, current availability stands at around 60 days.
Regional Nations Grapple with Supply Disruptions
Nepal: Kathmandu implemented a fresh round of fuel price revisions, with the Nepal Oil Corporation increasing petrol and diesel/kerosene rates by Rs15 per litre. This adjustment follows a previous revision on March 15, with petrol now priced between Rs 184.50 and Rs 187 per litre and diesel/kerosene between Rs 164.50 and Rs167 per litre. The corporation cited rising international purchase costs, noting petrol prices rose by Rs 76 per litre and diesel by Rs143 per litre between March 1 and 24.
Bhutan: Authorities are considering fuel-saving measures such as work-from-home arrangements and targeted rationing to conserve supplies. While existing reserves are deemed sufficient for now, stricter protocols may be introduced if the situation deteriorates, prioritizing essential services and limiting overall consumption.
Pakistan: The government increased kerosene prices by PKR 4.66 per litre to PKR 433.40, while maintaining petrol at PKR 321.17 and diesel at PKR 335.86 per litre. This decision aims to shield consumers, with the state absorbing part of the cost burden by compensating oil marketing companies. Recent fuel price hikes have exacerbated cost-of-living pressures, driving up transport fares and prices of everyday essentials like fruits and vegetables.
Aviation fuel prices have also surged, with jet fuel reaching PKR 476.97 per litre after repeated increases, pushing up both domestic and international airfares amid supply constraints.
Sri Lanka: Fuel prices have risen by approximately 25%, marking the second increase in a week and the third since March 1. Diesel, petrol, and kerosene have all recorded sharp rises, bringing prices close to levels seen during the 2022 economic crisis. Transport operators warn of large-scale disruptions, prompting the government to introduce a midweek public holiday for schools, universities, and non-essential workers to conserve fuel. The QR-based National Fuel Pass system has been reinstated, enforcing strict weekly limits on fuel purchases.
Broader Asian and Global Responses
China: The world's largest producer and consumer of coal has expanded its coal capacity in recent years to bolster energy security, continuing to rely on it even as clean energy initiatives scale up.
Myanmar: Rising fuel prices have led to shortages and restrictions, including limits on private vehicle use based on license plate numbers. Petrol stations face long queues, while railway stations witness increased footfall as commuters shift to trains, prompting additional services to manage demand.
Bangladesh: To address the energy supply crunch, Bangladesh has moved to increase diesel imports from India, planning to bring in an additional 45,000 tons by April. Initial shipments have arrived, with more expected after procedural formalities. Supplies are being transported via the Bangladesh-India Friendship Pipeline from Numaligarh Refinery Limited to the Parbatipur depot, resuming after a brief halt. Universities, foreign curriculum schools, and coaching centres have shifted to online classes, while five-hour rolling blackouts and shutdowns of most fertilizer plants due to gas shortages have been implemented.
Other nations, including Venezuela, Egypt, and Vietnam, have also introduced protective measures such as work-from-home policies, electricity cuts, and oil rationing to balance supply chain disruptions and shield consumers.
Strategic Chokepoint: The Strait of Hormuz
As Iran tightens its grip over the Strait of Hormuz—a vital 29-nautical-mile-wide passage linking key regional waters—global energy flows remain at significant risk. This route carries nearly 20 million barrels of oil daily, accounting for about a quarter of global seaborne trade. Any disruption has widespread repercussions, compelling countries to respond with a mix of price hikes and tax measures to manage supply pressures and protect their economies.
