A trigger for reform

POLITICAL ECONOMISTS NEED TO DIVERSIFY IMPORT OF FERTILISERS BEYOND THE GULF & REFORM THE SECTOR

- ASHOK GULATI RITIKA JUNEJA Respectively Distinguished Professor and Research Fellow at ICRIER

HERE IS A famous saying, “Never let a serious crisis go to waste.” India’s landmark economic reforms in 1991 were the result of a balance-of-payments crisis. And today, the country sits on comfortable foreign exchange reserves of over USD 728 billion, providing a good cushion to absorb external shocks. But the ongoing war in the Gulf between Iran and Israel plus the USA has sparked new vulnerabilities of energy and fertiliser supplies. This calls for strategic thinking and reforms in the fertiliser sector to ensure food security.

The escalating war is threatening major disruption in energy and fertiliser supplies. The risks extend to vital maritime chokepoints such as the Strait of Hormuz, through which a substantial share of global oil and gas trade passes. Any disruption in this corridor quickly ripples across commodity markets. Oil and gas, and by extension fertilisers, especially urea, have already felt the tremors.

For India, crude oil is the largest import item, with about 88% of its requirement being met through imports. In financial year 2024-25 (FY25), India imported roughly 243 million tonnes (mt) of crude oil worth $137 billion, nearly half of which is sourced from West Asia via the Strait of Hormuz. Just before tensions escalated in late February, Brent crude averaged $66 per barrel, but within two weeks prices spiked to around $120 per barrel before settling near $100 on Friday. India’s exposure extends to cooking gas as well. The country imports about two-thirds of its liquefied petroleum gas (LPG) (31.3 mt in FY25), much of it moving through the same corridor. As supplies tightened and import costs rose, domestic LPG prices were raised by ₹60 per cylinder.