When spare capacity is an illusion: a two-failure-mode policy framework for India's crude supply security (FY27–FY32)

Policy discussion of India’s crude supply security typically treats import risk as an undifferentiated quantity to be reduced through strategic stockpiling, diversification, or financial hedging. This paper argues that this framing is analytically incorrect and operationally costly. Using an integrated, data-driven assessment of India’s import book and refining fleet, the study shows that crude risk decomposes into two structurally distinct failure modes requiring different policy instruments. A physical disruption at the Strait of Hormuz is one against which global spare production capacity is largely trapped and unavailable, and against which financial hedging is structurally powerless. A cost shock in the discount on Russian crude is one against which physical barrels are readily substitutable, but a natural price hedge worth about two billion US dollars per month is lost. Using named disruption scenarios, the study shows that a simultaneous disruption raises the monthly crude bill by up to fourteen and a half billion US dollars, and that proactive, pre-positioned diversification into correctly-graded Atlantic-medium crude delivers approximately eleven times leverage in tail-risk reduction per unit of switching cost. These diagnoses are translated into a two-track, three-horizon policy roadmap that funds physical security and financial hedging in parallel. The framework is reproducible from public data and portable to other import-dependent economies.