New Delhi, Sep 5 (IANS) The order of events is the argument. On 28 February, the United States and Israel struck Iran, and Iran’s retaliation closed the Strait of Hormuz to most commercial shipping. Brent went from about $72 on the eve of the strikes to nearly $120 within nine days, and above $126 by the end of April.
Qatar declared force majeure on gas contracts that supplied over two-fifths of India’s imported LNG. More than two dozen Indian-flagged ships and some 780 Indian seafarers were inside the Gulf. By August the cost of moving a barrel of Saudi crude to India had risen more than fourfold, and war-risk cover for one Hormuz transit was reported as high as $10 million. Reserves fell more than $47 billion from their late-February peak by late May, and the rupee set record lows, before the swap inflows rebuilt them.
The Reserve Bank opened its dollar swap facility on 8 June. By 31 August it had drawn $136.38 billion, $127 billion of it from overseas Indians placing three-to-five-year deposits with Indian banks. The operation mobilised roughly four times the amount raised through the comparable 2013 swap windows, and deserves its applause. But the sequence matters more than the size. The physical shock came first. The dollar shield came three months later. It helped finance an adaptation already underway; it could not have prevented the disruption.
That sequence exposes a distinction Indian policy rarely makes explicit: a country has two reserves. The first is financial: dollars, gold and credit lines. The second is physical and institutional: the inventories, ships, contracts, insurance, payment channels, rehearsed decisions and working relationships abroad that let it obtain what it needs when supply, not money, binds. In 2013 the immediate stress was mostly financial, and dollars answered it. In 2026 the binding constraints lay increasingly in the second reserve, and dollars could finance the adaptation but not perform it.
On the first reserve, the news is good, and it should be stated precisely. India has not received $136 billion. Overseas Indians deposited it with Indian banks; the banks swapped the dollars to the RBI for rupees; the RBI’s reserves rose, and so did its forward book, the dollars it must return, to a record of about $137 billion in July. The RBI’s forward liability is matched by the banks’ deposit liabilities, so the money is not gone. One common analytical adjustment, among several adequacy measures, is to net the forward book from gross reserves: late-August reserves near $729 billion less the end-July forward book, about $590 billion, against the $327 billion of external debt that fell due within a year as of end-March, a cover of about 1.8 times, above the one-for-one benchmark conventionally applied to short-term liabilities. The rupees created against those dollars have left the banking system with a record liquidity surplus of roughly ₹9.7 trillion that the RBI must now manage; that is the same transaction seen from inside the country. The current account deficit was 0.6 per cent of GDP last year, against 4.8 per cent in the year to March 2013. Even at the May trough, standard adequacy indicators did not point to an external-liquidity crisis. That is exactly why the second reserve is the story.
Measure it honestly. India imports a record 88.7 per cent of its crude, and between 41 and 52 per cent of it crossed Hormuz before the war. The strategic petroleum reserve holds nine Page 1 of 3The Second Reserve Mir Junaid and a half days of requirement at full capacity; when the war began it was 64 per cent full, roughly six days. By May the government put rolling stock at sixty days of crude, sixty of gas and forty-five of LPG, counting refiners’ tanks and cargoes contracted or at sea, and those barrels are real; the public sources reviewed here do not disaggregate how much of that cover is immediately discretionary under emergency arrangements, as against what refineries need to keep running. Imported LNG met around half of gas demand in June, and the fertiliser sector is the second-largest consumer of that gas. India’s urea plants are gas-fed: a gas shock puts immediate pressure on urea output, and sowing windows do not move. In 2026, stocks were a third higher than a year earlier, and the allocation order kept that pressure from reaching the farm. Indian-flagged vessels carried only 6.1 per cent of India’s overseas cargo in 2024-25, down from about 41 per cent in 1987-88 on the same official series; the fleet carries roughly twice the tonnage it did then, but trade grew far faster, and the other 94 per cent moves on hulls India cannot direct. And the barrels that replaced Gulf crude fastest were Russian, which India already bought in volume; Washington’s thirty-day sanctions waiver in the first week of March, later extended to all buyers, let refiners ramp purchases sharply.
Against this, the spring was a success of adaptive crisis management. Non-Hormuz sourcing rose from about 55 to about 70 per cent of crude imports within weeks. The United States became India’s largest LNG supplier for the first time. A gas-allocation order came within nine days; an Informal Group of Ministers under the Defence Minister met from March on fuel, fertiliser, shipping and essential supplies; a sovereign-backed maritime insurance pool was approved in April and wrote its first war-risk policy on 12 May. India passed the test. It passed it from thin dedicated buffers, on foreign hulls insured abroad, at two to five times pre-war freight, with a cost premium that has not been disclosed and a financial instrument that followed the shock by three months. Rerouting also cost throughput: a tanker fetching Atlantic crude completes a fraction of the voyages a Gulf shuttle does, so the same hulls deliver less over time, while exporters face both dearer inputs and higher outward logistics costs. Much of that capacity was built during the shock, and much of the visible coordination ran through a ministerial group convened for the crisis, by its own name informal. The Strategic Policy Group under the National Security Adviser has the standing membership to hold a simultaneous currency, energy, shipping, fertiliser, payment and information shock, and internal arrangements may exist that are not public; what is not publicly visible is a permanent doctrine that measures, rehearses and benchmarks continuity across these systems together.
Call the remedy deterrence by continuity, deterrence in the strategist’s sense of denial: the objective is that no single external disruption can stop an essential national function, so that squeezing a chokepoint cannot halt it and the return on trying falls. Finland’s security-of-supply law and Japan’s economic-security act are antecedents, neither of which can be copied; the useful step for India is to treat these capabilities as a reserve that can be measured. The Defence Minister asked in May for strategic reserves to be re-evaluated and for scenario planning; this is an argument for doing that through national benchmarks, with aggregates published where security permits. This is not autarky. India benefits enormously from trade, and indiscriminate import substitution has raised costs and invited rent. The test for domestic capability is narrow: would an interruption of, say, ninety days stop an essential function, and is there no cheaper redundancy? Fuel, gas, fertiliser and LPG are priority candidates for formal stress testing; most imports would not justify strategic redundancy and should keep being bought on the world market.
Five steps follow, and the last of them, measurement, should in practice come first. First, storage on the cheap model: India’s caverns were about one-third empty when the war began. Let producers fill leased caverns at their own cost with India holding first call, as Page 2 of 3The Second Reserve Mir Junaid Korea does, as ADNOC has done at Mangaluru since 2018, and as the storage cooperation agreed with the UAE in May extends; make it the template for the Phase II caverns. Second, a designated pool of Indian-controlled tankers and gas carriers sized against a predefined share of emergency import requirements, drawn where practical from vessels already under Indian control or flag, with government first-call rights written into their terms; the new insurance pool, which had written 1,600 war-risk policies by late July while premiums fell by more than a third from their conflict peak, now covers them; its adequacy should be stress-tested against correlated claims in a prolonged disruption. Third, retain the 9 March statutory priority framework, which held urea plants at seventy per cent of their supply behind household gas, as standing crisis planning, rehearse it before each sowing season, and publish fertiliser stock in weeks of seasonal cover rather than annual tonnage. Fourth, a rehearsed settlement protocol among the RBI, the Finance Ministry and designated banks, built on the RBI’s 2022 rupee-settlement framework, for paying for emergency energy cargoes in more than one currency, with sanctions opinions obtained in peacetime. That is not de-dollarisation; the aim is decision speed. Fifth, make the ministerial group’s work permanent: a standing measurement and exercise function inside existing national security architecture, not a new body, with benchmarks, aggregates published where security permits, and an annual compound-shock exercise. If such an exercise already runs, the government should say so; the proposal then shrinks to the benchmarks.
The objections are serious and mostly conceded. The RBI manages financial risk well; the combined shock is what falls outside its mandate. Stockpiling is inefficient; the lease model answers that. Chokepoints cannot be eliminated; the metric is concentration. None of this is free: storage carries capital, standby ships cost fees, reinsurance is a contingent liability; the standard should be the cheapest credible redundancy that keeps an essential function above a defined threshold, and the comparison is March’s undisclosed freight and insurance premium, paid while reserves fell by more than $47 billion.
None of this buys independence. In March, India still had to ask for waivers, for cargoes, for safe passage, and it obtained safe passage through the strait from Tehran and a sanctions waiver for Russian crude from Washington, and bought replacement cargoes on a market the same war had tightened. Stocks and ships decide when the asking starts and on what footing. A country with an emergency oil buffer it can direct at will, an assured pool of ships available under emergency first-call arrangements and a bank channel that clears in days makes its first call to a foreign capital late, and as a buyer. A country with six days of dedicated reserve and its hulls insured abroad makes it in the first fortnight, under immediate necessity. The weeks between those two calls are the whole of India’s freedom of action.
The bill for this year’s shield falls due between 2029 and 2031. The overseas Indians who placed the deposits did so on commercial terms, and they deserve the truth: the money will be repaid because the contract requires it, and the next mobilisation will succeed only if this one is remembered as honest. The question for the years between is not whether reserves stay high. It is whether the adaptive continuity of 2026 becomes designed continuity, so that when the deposits mature, India needs a smaller shield, not a larger one. The first reserve has been counted. The second has not. Counting it means, for every essential function, three numbers: assured days of continuity, concentration of dependence, and the time needed to substitute or reroute. That count is where economic security begins.
(The author is Mir Junaid, President, Jammu & Kashmir Workers Party; Founding President, Centre for Inclusive & Sustainable Development. He tweets @MirJunaidJKWP and can be reached at junaidjawaidmir@gmail)
–IANS
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