90% oil imports expose India to West Asia shocks: Vedanta chairman on what must change in energy policy

As the war between Iran and the United States-Israel entered its fourth day and Tehran announced the closure of the Strait of Hormuz, Vedanta Chairman Anil Agarwal warned that India's heavy reliance on imported natural resources leaves it exposed to geopolitical shocks.

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"A major geopolitical shock in a resource-rich region, like the ongoing conflict in Iran, makes India vulnerable because of its huge import dependence in natural resources from below the ground," Agarwal said on Tuesday.

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The Strait of Hormuz - the narrow mouth of the Persian Gulf through which about a fifth of the world's oil passes - has become a flashpoint. Iran’s Islamic Revolutionary Guard Corps (IRGC) said on Monday that the waterway is "closed" and warned that vessels attempting to pass would be targeted.

Brigadier General Sardar Ebrahim Jabari, a senior adviser to the Guards commander-in-chief, said: "The strait (of Hormuz) is closed. If anyone tries to pass, the heroes of the Revolutionary Guards and the regular navy will set those ships ablaze."

Tankers moving through the strait carry oil and gas from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the UAE and Iran, much of it destined for Asia. China, India, Japan and South Korea together account for 75 per cent of oil and 59 per cent of LNG flows through the corridor, according to Zero Carbon Analytics. China and India are the largest single destinations.

Against that backdrop, Agarwal argued that India must treat domestic natural resource development as urgent. "We need to immediately declare this sector a national priority, cut cumbersome processes and facilitate rapid increase in domestic production. We have such a progressive government that this can happen. Some risk has to be taken, and we should take it. It will deliver massive returns in terms of jobs too."

He added that the sector offers employment potential beyond traditional profiles. "Young women are entering this sector in a big way. And there are talented Indians abroad who can do a ghar vapsi."

Agarwal laid out the scale of India's exposure. "Today, 90% of our oil is imported. This fuels our transport. 66% of our LPG is imported. We use it in our homes to cook. So is 50% of LNG, which goes into low emission public transport vehicles."

He pointed out that oil and gas are the biggest items in India's import bill, around $176 billion per year, and any sharp rise in prices has an adverse effect on macroeconomic indicators like current account deficit, value of the rupee, fiscal deficit and inflation. 

Beyond hydrocarbons, the Vedanta chairman noted another significant vulnerability, and that is gold. "Interestingly, our second-highest import is gold, around $65 billion a year, the demand and price of which also soars in times of uncertainty. Oil, gas and gold account for almost 30% of our total imports."

To address the structural imbalance, Agarwal called for regulatory changes. He said the government should exempt the sector from time-consuming regulations, including public hearings.

"The latter has already been done for critical minerals, but needs to be done across the board for all processes and minerals. Environment clearances need to be on a self-certification basis. Once a company commits to the Government’s rulebook, there should be no further process, only an audit at a later time."

He also urged that existing assets, most of which are owned by the government, should be utilised fully. "At least 50% stake can be divested to proven people. Employees will get shareholding and a promise of no retrenchment."

"India cannot wait. The world is more unsettled and uncertain than it has been at anytime in my memory. There are no permanent friends or partners in today’s geopolitics. Self-reliance is more than a desirable aspiration. It is an immediate economic and strategic imperative," Agarwal said.