West Asia War and the 1973 Oil Crisis: What India Faces Now

The Strait of Hormuz is the world's most critical oil chokepoint. Roughly 20% of global oil supply transits through it daily. Since the US and Israel began military operations against Iran, shipping through the strait has largely ceased. Oil prices have risen to near $100 per barrel. The disruption is being compared to the 1973 Arab oil embargo — but the volume of oil blocked is more than four times larger than that crisis.

In October 1973, Arab members of OPEC announced a production embargo against countries that supported Israel in the Yom Kippur War. The US had provided $2.2 billion in military aid to Israel. OPEC nations cut output sharply and eventually banned oil sales to the United States entirely.

The embargo removed approximately 4.5 million barrels per day from global supply. By 1974, oil prices in the US had quadrupled. The US introduced fuel rationing and highway speed limits to reduce consumption.

A deeper cause was the collapse of the Bretton Woods system. When Nixon decoupled the dollar from gold in 1971, the purchasing power of oil revenues — denominated in dollars — fell sharply. The embargo was partly a response to that loss.

The resolution came through a deal with Saudi Arabia: the kingdom agreed to price oil exclusively in dollars and to recycle surplus revenues into US financial markets. The petrodollar arrangement that followed shaped global finance for decades. Other major oil exporters adopted the same practice, creating sustained demand for the US dollar worldwide.

India was not the target of the 1973 embargo, but the price shock struck the economy hard. India's oil import bill more than tripled: from $414 million in 1973-74 to $1,350 million in 1974-75.

The fourfold increase in oil prices drove inflation and compressed real wages. The government turned to the World Bank, the IMF, and donor countries for assistance. That assistance came with conditions: reduce trade licensing, allow large industrial houses to expand capacity, and freeze wages. Former Principal Secretary to PM Indira Gandhi, P N Dhar, documented how these austerity conditions deepened social tensions.

In May 1974, nearly two million railway workers launched the largest railway strike in Indian history, demanding wages in line with their cost of living. The strike ended in three weeks, but the underlying discontent did not. Opposition leader Jayaprakash Narayan organised protests across Bihar. Those protests contributed directly to the conditions under which Emergency was declared on 25 June 1975 — a pivotal event in Indian political history.

India imports approximately 85% of its crude oil requirement. West Asia — comprising Iraq, Saudi Arabia, the UAE, Kuwait, and Iran — supplies a large portion of that crude. Any sustained closure of the Strait of Hormuz raises India's import bill and widens the current account deficit, putting downward pressure on the rupee.

India holds a Strategic Petroleum Reserve of roughly nine to 12 days of consumption, stored in underground caverns at Visakhapatnam, Mangaluru, and Padur. This buffer limits immediate impact but offers limited protection against a prolonged crisis.

The Ministry of Petroleum and Natural Gas is the nodal ministry for energy security policy. India has also been investing in alternative supply arrangements, including long-term contracts with the US, Russia, and African producers. However, West Asian crude remains central to refinery requirements due to its grade and logistics.

For the rupee, a sustained oil price spike is doubly damaging: it increases the dollar outflow for oil purchases and may prompt portfolio capital outflows if the current account deficit widens materially.

India has maintained diplomatic ties with all major parties in the West Asia conflict — the United States, Israel, Iran, and the Gulf states. This multi-alignment approach has historically allowed India to source oil from diverse suppliers and to negotiate discounted crude from Russia following the 2022 Ukraine war.

The Ministry of External Affairs tracks India's official engagement in the region. Statements on India's position regarding the Iran-Israel-US conflict are published on the MEA press releases page. India's stated preference is for de-escalation and a return to diplomatic channels.

For aspirants preparing for UPSC GS-2, this crisis connects directly to topics on India's neighbourhood-first plus extended neighbourhood policy, energy diplomacy, and the India-Iran-Afghanistan connectivity corridor.

This crisis is high-value for multiple UPSC Prelims and Mains topics:

GS-2 (International Relations):

• •India's West Asia policy and energy diplomacy
• •India-Iran relations and the Chabahar port agreement
• •India-US relations: convergence and divergence on Middle East policy
• •India's position at multilateral forums on conflict and energy

GS-3 (Economy and Energy Security):

• •India's crude oil import dependency and strategic petroleum reserves
• •Impact of oil price shocks on the current account deficit and rupee
• •Historical parallel: 1973 oil embargo → petrodollar system → India's inflation and Emergency
• •Inflation transmission: crude prices → fuel prices → transport costs → food prices

For Banking and SSC CGL General Awareness, watch for questions on the Strait of Hormuz, OPEC, strategic petroleum reserves, and the petrodollar system. Visit /exams/upsc-cse for a topic-wise preparation guide.

• •Ministry of Petroleum and Natural Gas — India's energy policy, strategic reserve status, and fuel pricing data.
• •Ministry of External Affairs — Press Releases — Official statements on India's West Asia engagement and bilateral positions.
• •Press Information Bureau — Government announcements on economic policy responses to oil price movements.