Why are oil prices skyrocketing due to the conflict in the Middle East? How are petrol, diesel, and kerosene produced from crude oil?

The ongoing conflict in the Middle East involving the US, Israel, and Iran has shaken the global energy market. Due to tensions in the Strait of Hormuz, the supply of approximately 20% of the world’s crude oil and fuel is being severely disrupted.

This crisis has emerged as a grave challenge for major oil-importing nations like India, where the prices of all fuels—including petrol, diesel, aviation fuel, and LPG—have begun to rise. India imports 88% of its crude oil, and a significant portion of this supply traverses this very route. Let us attempt to understand why, exactly, every type of fuel is becoming more expensive.

Why is the Strait of Hormuz Important?

The Strait of Hormuz is a narrow maritime passage situated between Iran and Oman, connecting the Persian Gulf to the Arabian Sea. More than 20 million barrels of crude oil pass through this strait daily. This accounts for one-fifth of the global supply of petroleum liquids and over a quarter of the world’s seaborne oil trade.

This route is of critical importance to India, as 2.5 to 2.7 million barrels of crude oil—imported daily from Iraq, Saudi Arabia, the UAE, and Kuwait—are transported via this channel. Amidst the conflict involving Iran, vessels traversing this route have faced attacks; furthermore, a surge in insurance premiums and the necessity to reroute ships have disrupted supply chains.

What is the Impact on India?

India is the world’s third-largest oil importer.

It imports 88% of its oil requirements, with half of that volume passing through the Strait of Hormuz.

Global crude oil prices have surged past the $100–$115 per barrel mark. Every $10 increase in crude oil prices could impose an additional burden of $15–$16 billion on India’s import bill.

Crude oil serves as the raw material from which various products are derived through a single refining process. Through fractional distillation, it yields products such as petrol (lighter fractions), diesel (heavier fractions), kerosene (aviation fuel), and others. Consequently, when the primary source—crude oil—is disrupted, the prices of all derived fuels tend to rise. 60% of India’s LPG and half of its total gas supply originate from the Middle East—with 90% of that volume passing through the Strait of Hormuz.

Why are all fuels becoming more expensive?

Crude oil is a naturally occurring mixture of hydrocarbons that cannot be used directly in its raw form. To convert it into usable fuels, a process known as fractional distillation is employed.

In this process, crude oil is heated, and its various components are separated into different fractions based on the varying boiling points of the hydrocarbon molecules. Lighter molecules have lower boiling points; consequently, they rise to the upper section of the distillation column, where they cool and condense. Heavier molecules have higher boiling points and, therefore, remain at the bottom.

Since all these fuels are derived from the same source—crude oil—a decline in crude oil production results in a reduced supply reaching the refineries. Refineries process crude oil to produce these fractions in fixed proportions; therefore, it is difficult to compensate for a shortage of one specific fuel by drawing from the others.

Who operates India’s refineries?

India currently possesses an installed refining capacity of approximately 258 Million Metric Tonnes Per Annum (MMTPA), distributed across a total of 23 operational refineries.

Two major public sector companies account for the largest share of this capacity. However, two large private sector refineries—Reliance’s Jamnagar facility (one of the largest in the world) and Nayara Energy’s Vadinar facility—also make significant contributions.

Additionally, the Indian Oil Corporation operates 9 refineries, Bharat Petroleum operates 3, and Hindustan Petroleum operates 2. Other key operators include Chennai Petroleum, Numaligarh Refinery, Oil India, MRPL, and Nayara Energy.

India’s Preparedness and Challenges

Imports from alternative sources—such as Russia, the United States, and Africa—have increased. According to government statistics, 70% of India’s oil imports are now being sourced through these alternative routes. The country currently holds oil reserves sufficient for 20 to 25 days of consumption; however, these reserves could face depletion in the event of a prolonged crisis. Rising fuel prices will lead to an increase in the prices of transportation, food, and other commodities.