by R. Sasankan

Every crisis sends policy makers into a tizzy, forcing them to re-calibrate strategies in order to confront sudden challenges that threaten to drown economies. The Iran war is just another Black Swan event that has persisted longer than anticipated, sending waves of panic through the nerve centres of governments, corporate boardrooms and household kitchens.

The Iran war that led to the impasse over the flow of global crude oil through the Strait of Hormuz has already wreaked havoc because of the surge in oil prices and the whiplash of across-the-board inflation that immediately followed in its wake.

The Indian economy and its financial markets have naturally been spooked by the external shock over which the government has little control. Prime Minister Narendra Modi has already made an impassioned appeal for austerity. He has urged Indians to cut back energy consumption at homes, work from homes and limit use of personal transport, and ensure frugality in discretionary spending by eschewing gold purchase and overseas travel.

But the appeal for austerity isn't enough. Policymakers must now adopt greater proactive measures to deal with the crisis.

India ranks as the third-largest consumer and second-largest net importer of crude oil globally, sourcing roughly 88% of its needs overseas. In the case of liquefied natural gas (LNG), India is the fourth-largest importer in the world, importing about half of its total natural gas requirements.

India now needs to turn to its closest allies and hammer out mutually beneficials agreements that will help them to ride out this storm. One country that we need to reach out to is the United Arab Emirates (UAE) which ranks among the top 10 largest oil producers globally and holds the world's 6th largest proven crude oil reserves.

The UAE produces an average of over 3 million barrels per day and holds roughly 111 billion barrels of proven crude reserves. The majority of these reserves (around 96%) are located in the Emirates.

Hydrocarbons continue to be the primary pillar of the UAE's economy. Oil and gas operations represent roughly 30% of the UAE's GDP and provide the bulk of the government's revenues. The UAE is now considering a pipeline to avoid the Strait of Hormuz. ADNOC, the diversified energy group that is wholly owned by the Abu Dhabi government, has been directed to complete this pipeline by next year.

India and UAE enjoy very good economic and commercial relations which spring from the deepening ties at the leadership level. India-UAE trade, valued at US$ 180 million per annum in the 1970s, touched US$ 84 billion in 2023-24 making UAE, India's third largest trading partner after China and US. Moreover, UAE is the second largest export destination of India (after the US) with an amount of nearly US$ 36 billion for the year 2023-24. For the period April 2000-September 2024, FDI inflows from the UAE account for nearly US$ 22 billion (3.1% of the total inward FDI inflows), making it seventh largest source of investments. The UAE has committed to invest US$ 75 billion in India's infrastructure sector over a period of time.

India is a significant buyer of crude oil from the UAE, which serves as one of its top five suppliers. In early 2026, the UAE accounted for roughly 10%-10.6% of India's total crude oil imports, providing a stable, geographically close source for India's energy needs. In a strategic shift away from the US dollar, India has begun making payments in Indian Rupees (INR) for UAE oil following a 2023 agreement.

One of the biggest developments in recent times is UAE's decision to drop out of the OPEC, the oil cartel that sets rigid production limits on its members. The exit from OPEC is considered highly advantageous for UAE as it allows the nation to utilize its massive investment in spare capacity to dramatically increase oil output.

India's energy planners need to seize the opportunities thrown up by the two developments -- UAE's exit from the Opec and its attempt to lay a pipeline that will skirt the chokepoint that the Strait of Hormuz represents. India is a very large crude oil buyer while the UAE is now trying to maximise its oil sales. In an earlier article under this column, I had criticised India's policy of sewing up crude supply deals with almost all oil producers in the world.

Crude is not in short supply. Even during the ongoing US-Israel-Iran war, which started on February 28, there has been no oil shortage in the market. Undeniably, there have been some disruptions but this can happen to oil exports from any region at some point or the other. My simple argument is this: why should India go all over the world in its search of oil when a sizable portion of its requirement can be bought from three or four major producers in the Middle East and Russia?

Now is the time for India to strike a very large deal with UAE. I would propose an ambitious and comprehensive deal that would include dedicated crude, LPG, LNG, fertilizers and other by-products - all of which could potentially bypass the Strait of Hormuz. This would create a mini SABIC that would be dedicated to fulfilling India's demand for an equivalent of 50-80 MTOE of crude oil and products, and about 20 MTOE each of LNG and LPG. The port would be based on the northern tip of Oman in the UAE with the advantage of dedicated shipping to India via the Gulf of Oman!

Indian oil majors like the Adanis and the Ambanis could invest in the facility along with ADNOC and a single flagship public sector investor like IOC or ONGC.

India and the UAE need each other now more than ever. India should take the initiative to negotiate a large deal. In the oil trade, only large is beautiful and only big buyers command respect. For India, which imports 88 per cent of its crude requirement, price is a big factor. That of course will depend on the quantity that the UAE can ship to India.