Oil, power, and politics of disruption

The blue waters of the Strait of Hormuz, connecting the Persian Gulf to the Arabian Sea, form a vital artery of the global economy. Through this narrow gateway — stretching just 33 km at some points — pass ships carrying nearly a fifth of the oil that is traded worldwide. After the U.S. and Israel launched a military campaign against Iran on February 28, Iran blocked ships passing through the Strait, leading to price increases and turmoil in energy markets.

Oil and natural gas account for a little over half of the global energy supply (with coal, renewables, and other sources accounting for the rest, according to IEA data for 2024). They fuel vehicles from trucks to aeroplanes, produce electricity and cooking gas, and provide critical raw materials for industries.

West Asian countries around the Persian Gulf, notably Saudi Arabia, the UAE, and Iran, are among the largest producers of crude oil and natural gas. At the same time, some of the largest energy consumers are in East and South Asia, particularly China, India, and Japan. Still, these countries have limited domestic oil reserves to power their growing economies (though China is a major natural gas producer) (Chart 1). They depend on crude and natural gas imports from West Asia, much of which passes through the Strait of Hormuz.

America and West Asia

The concentration of energy reserves, especially oil, in a few regions has been the primary trigger for some of the long-standing and intense contests between global powers. Aside from the Persian Gulf countries, only a few nations — the U.S., Russia, Venezuela, and Canada — have large oil and natural gas reserves.

The U.S. has been a principal player in the geopolitics of energy, both a major producer and consumer. Given the gas-guzzling sectors driving its economy, the U.S. has an average energy supply per person that is 10 times that of India and 2.4 times that of China. The hunt for more energy has been one of the primary motives of the U.S. international policies.

Control over oil in West Asia shifted from large American and European firms to state-owned national oil companies since the 1950s. Oil prices increased sharply in the 1970s, with Arab members exerting greater influence within the Organization of the Petroleum Exporting Countries. The U.S. response has been twofold: it increased domestic production by drilling more shale oil, especially since the mid-2000s, making it the world’s largest oil producer, and it tried to mould the geopolitics of oil in its favour through strategic interventions, including the Gulf War (1990-91), the Iraq War (2003-11), recent action in Venezuela (2026), and the ongoing U.S.-Israel war with Iran.

Although current production levels are modest, Venezuela and Iran together account for 39% of the world’s proven oil reserves. The promise of future oil is what makes these countries strategically important, especially in the profit projections of U.S. President Donald Trump. However, the closure of the Strait of Hormuz has, at least in the short term, upset Mr. Trump’s calculations and made Russia an unintended beneficiary of the energy turmoil. Following the Russia-Ukraine war in 2022, Russia became a pariah in the West, especially Europe, and trade sanctions have long stymied its oil trade. But suddenly, as oil production capabilities in West Asia take a hit, Russian oil has become crucial for stabilising energy prices. Outside West Asia, Russia is the only country with a large tradable oil surplus (Table 1).

Russian oil and India

The oil markets are deeply interlinked. Even a ripple in a corner of the market can gather itself into a tumultuous wave. India is the world’s second-largest importer of crude oil and the third-largest consumer. Supply disruptions result in higher prices for essential goods and services in India. At the same time, India’s actions in the oil market significantly impact global oil prices.

European countries, with limited domestic oil and natural gas reserves, have traditionally relied on energy imports, mainly from Russia, to withstand the frosty winters. But with sanctions on Russian products imposed since 2022, Europe has had to seek new energy sources, mainly in West Asia.

In this context, India began purchasing Russian oil at discounted prices. The share of Russian imports in India’s oil purchases increased dramatically — from 2.5% in 2021 to 39.0% in 2023. Notice that crude oil is processed in refineries to convert it into a range of products, including petrol, diesel, LPG, and petrochemicals. While dependent on imported crude, China and India have built large refining capacity and export a portion of their refined oil products. Some Indian refiners have made large profits by exporting products processed from discounted crude.

Despite their protestations, Western leaders quietly welcomed the stability in oil prices that resulted when demand from India was partly diverted to sanctioned Russian oil since 2022 (Chart 2).

Today, with the Strait of Hormuz closed and oil prices crossing $110 a barrel, the U.S. is desperate to see greater purchases of sanctioned Russian oil, which has long been marooned at sea, to calm the markets.

A week, indeed, can be a long time in international politics. As tensions prolong in West Asia, the global energy order could be reshaped.

(Jayan Jose Thomas is a Professor of Economics at the Indian Institute of Technology, Delhi)

Published – March 19, 2026 11:05 pm IST