India's evolving transport fuel strategy is being shaped by energy security concerns following instability in West Asia, which has highlighted the country's dependence on imported crude oil and natural gas. As the world's third-largest crude oil consumer, India imports nearly 85% of its crude oil, with around 45% of these shipments previously passing through the Strait of Hormuz before disruptions linked to the US-Iran conflict. When this route was affected, supply chains were disrupted, highlighting structural vulnerabilities in the energy and mobility sectors.

A government response helped manage short-term disruptions, while also highlighting the extent of import dependence. The situation has reinforced the view that the transition in transport fuels is not only an environmental objective but also a national security consideration.

Supply-side vulnerabilities and energy diversification

India has expanded its crude oil sourcing network, increasing suppliers from around 20 countries to 40 by March 2026. As a result, approximately 70% of crude imports are now sourced from outside the Strait of Hormuz. However, overall import dependence remains high at nearly 90%.

Liquefied natural gas (LNG) supply chains were also affected, with around 52% of import volumes impacted by force majeure conditions during the conflict period. Suppliers such as the United Arab Emirates, Saudi Arabia, and Iraq remain significant, while the United States is emerging as a larger LNG supplier.

In response to supply pressures, government directives in early March instructed refineries to increase LPG output, resulting in a 25% rise in domestic production. Household LPG supply was prioritised, while non-domestic users faced rationing. Industrial and commercial gas supply was reduced to 80% of average March 2026 consumption to manage demand.

Despite these measures, panic buying and queues at fuel stations in several cities indicated the limitations of supply-side interventions during external shocks.

Oil price volatility and fiscal exposure

Global crude prices have remained volatile, briefly crossing US$ 100 per barrel during the conflict before declining after a ceasefire. The risk of further increases remains. A sustained US$ 1 per barrel rise would add approximately Rs. 1.60 trillion (US$ 17.2 billion) to India's import bill. In FY26, India imported oil worth US$ 109.5 billion, according to the Petroleum Planning and Analysis Cell (PPAC).

Disruptions in the Strait of Hormuz, including incidents involving vessels returning to the Persian Gulf after reported firing while exiting the Strait, have highlighted risks in global shipping routes.

Transport sector dependency

Transport remains a major source of petroleum consumption. India recorded sales of over 12.59 million petrol vehicles in FY26, accounting for around 44% of total vehicle sales of 28.3 million, according to the Vahan database. Of India's 378 million registered vehicles, more than 96% run on petrol or diesel, while about 1.3% are electric.

Ethanol blending and flex-fuel policy push

India has expanded its ethanol blending programme since 2003, with faster implementation after 2014. The country reached 10% blending in 2022 and nearly 20% (E20) by 2024-25. The programme replaces approximately 45 million barrels of imported oil annually, or about 2.5% of total imports.

The E20 rollout introduced in 2025 has raised concerns about reduced mileage and potential engine performance issues, particularly in older vehicles manufactured before 2021. The Union Ministry of Petroleum and Natural Gas has initiated discussions on increasing the use of flex-fuel vehicles (FFVs), capable of operating on ethanol blends up to E85 (85% ethanol and 15% petrol).

A working group comprising oil marketing companies, automobile manufacturers, and government bodies has been formed to develop a rollout roadmap. It is expected to submit recommendations to state-run oil companies, the Society of Indian Automobile Manufacturers, and relevant ministries.

The policy is also being discussed in meetings convened by the petroleum ministry, where stakeholders are assessing pricing structures, fuel distribution readiness, and incentive mechanisms for FFVs, which are more expensive to manufacture than conventional petrol vehicles.

Industry concerns and infrastructure gaps

The automobile industry has raised concerns regarding pricing of blended fuels, retail availability, and the absence of targeted incentives. Industry participants have stated that without structured support, FFV adoption may remain limited despite policy interest.

Officials from ministries including petroleum and natural gas, heavy industries, and road transport, along with oil marketing companies such as IOCL, HPCL, BPCL, SIAM, and major automakers, did not respond to queries at the time of reporting.

Ethanol supply surplus and production outlook

India's ethanol production capacity is estimated at around 20 billion litres, compared with E20 demand of approximately 11 billion litres. Ethanol producers have called for higher blending levels and support for FFV adoption.

C. K. Jain, President of the Grain Ethanol Manufacturers Association (GEMA), stated that India has produced 20 billion litres of ethanol, with an additional 2-3 billion litres expected by year-end. He indicated that this could support blending levels of up to 40%, noting that higher blends may reduce energy output but do not damage engines, and that mileage impacts could be offset by pricing.

S. S. V. Ramakumar stated that E20 adoption required testing and around 10 billion litres of ethanol supply. He added that production could reach 20 billion litres by 2028, while further testing would be required for blends above 20% to ensure compatibility with engines and components.

Policy evolution and economic gains

India's ethanol blended petrol (EBP) programme was launched in 2003 to reduce oil imports and support agriculture. After gradual adoption, it accelerated post-2014, reaching 10% blending in 2022 and progressing towards E20 targets by 2025-26 through policy measures, pricing mechanisms, and expanded feedstock use such as sugarcane and grains.

In January, Petroleum Minister Hardeep Singh Puri stated that near-20% blending had resulted in foreign exchange savings of about US$ 19.3 billion and direct payments exceeding US$ 15 billion to farmers over the past decade.

Flex-fuel vehicles and global comparison

India is considering FFVs capable of operating on ethanol, petrol, or blended fuels up to E85 as part of its long-term mobility strategy. In Brazil, FFVs introduced in 2003 account for over 90% of new vehicle sales, supported by a large sugarcane-based ethanol sector.

In India, experts note that while FFVs are strategically relevant, consumer acceptance remains a factor. Sanjukta Subudhi of The Energy and Resources Institute stated that although FFVs produce lower tailpipe emissions than petrol vehicles, further studies and quality assurance measures are required to improve confidence.

Broader energy transition context

India continues to explore CNG, biodiesel, electric mobility, and green hydrogen alongside ethanol. CNG has reduced diesel use but continues to rely on imported gas. Hydrogen remains in pilot use for heavy-duty transport. Battery electric vehicles (BEVs) are commercially available and are increasingly viewed as important for long-term energy diversification due to reliance on domestically generated electricity.

BEV adoption remains below 10% in most vehicle segments, except three-wheelers, due to high upfront costs and limited charging infrastructure. Analysts identify three key requirements for wider adoption: sustained policy support, increased infrastructure investment, and development of domestic supply chains for batteries, components, and critical minerals.