India accelerates transport electrification as fuel supply risks mount

The ongoing conflict in the Middle East has shown how vulnerable India is in securing oil and gas supplies. The South Asian country is the world’s third-largest consumer of oil and imports about 85% of its demand. Prior to the conflict, nearly half of those imports passed through the Strait of Hormuz. The impact of the closure of the Strait of Hormuz has been visible on India’s energy landscape.

According to a report by Charith Konda, an energy specialist in Indian mobility and new energy at IEEFA, a swift, multi-pronged response by the government has helped cushion the worst and most immediate effects, but it also shows that India still has a lot of work to do. Konda said that the crisis showed that energy transition in transport is not just an environmental goal but a national security imperative. 

New Delhi has already diversified the number of sources it buys crude oil from, from about 20 to 40 by the end of March and as a result of this, India can now buy roughly 70% of its oil from outside the Strait of Hormuz.

India is also trying to diversify the sources from which it buys LNG, as almost 52% of its purchase volume was impacted by a force majeure declared due to the war. While traditional suppliers such as the UAE, Saudi Arabia and Iraq remain important, the United States is also turning into a major LNG supplier for India.  

In early March, the government pushed refineries to crank up LPG output, boosting domestic LPG output by a quarter. LPG supplies were prioritised for households, while supplies for all non-domestic uses are being rationed. By reducing natural gas supplies to industrial and commercial space by nearly 80% of their average usage in March, demand from these sectors was trimmed - for now.  

The Indian government has, however, given strong assurance about fuel availability but that did not stop users from queuing up at fuel stations in several cities. This proved that fixing only the supply side issues is not enough to insulate India from external shocks, according to IEEFA.  

For over two decades now, India has been working on diversifying its transportation fuel mix. Policy makers have nudged users to switch from diesel to CNG by promoting ethanol blending, trialling biodiesel and boosting electric vehicle (EV) usage. Yet close to 96% of vehicles in India still run on liquid fuels like petrol or diesel with only 1.3% being electric powered.   

Because of government mandates, ethanol blending with petrol jumped sharply from 5% in 2019–20 to almost 20% in 2024–25, almost half a decade ahead of schedule. This now replaces about 45mn barrels of imported oil per year, around 2.5% of total imports, according to IEEFA. However, production of ethanol is resulting in the diversion of agricultural land from food crops toward water-intensive industrial crops like sugarcane. Higher ethanol blends can also be damaging to the engines in vehicles made before 2021. Konda writes that ethanol is a useful supplement, but not a solution. 

Konda also says that CNG is far from a long-term solution despite being much cleaner than diesel because it still generates air pollutants and keeps India reliant on imported natural gas.

Green hydrogen is another option being talked about as a fuel for long-haul trucking. It can be produced locally, help cut emissions and reduce reliance on imported oil. However, usage of hydrogen in transportation is still under trial and will take a long time to become commercially attractive, IEEFA adds.

Battery EVs  

In turn, Konda adds that BEVs as a transportation option make the most sense. The technology is improving at a very fast clip and becoming increasingly attractive when it comes to cost. This applies to urban, commercial and the private sectors. This option is also suitable for two and three-wheelers, passenger vehicles, light commercial vehicles and buses. The most important advantage is that BEVs directly displace fuel imports and can be powered by locally produced electricity.    

And support for BEVs is seen across the board as both central and state governments have already announced incentives, tax waivers and mandates, with heavily populated states like Uttar Pradesh, Maharashtra and Karnataka leading sales. However, all this has to show up in sales numbers as the share of BEVs is still only 10% of all the new vehicle sales across most segments, except in the three-wheelers. These abysmally low numbers are largely the result of steep upfront costs and a poor charging ecosystem.  

IEEFA says that increasing BEV adoption will need continued policy support from the government, both in individual states and in New Delhi, including fiscal incentives, supply-side mandates and fleet decarbonisation targets. Investment in BEV manufacturing and charging infrastructure must also accelerate sharply. Current investment trails the level needed for India’s 2030 electric mobility goals by 82%, Konda writes.    

In addition, India needs to set up a domestic BEV supply chain, from auto and auto-component manufacturing, battery and cell production, to recycling while securing access to critical minerals. The nation's heavy dependence on imported oil and gas, much of it from the Middle East, makes transport electrification an urgent economic and strategic priority.