Nuclear armed neighbors India and Pakistan were involved in a series of armed skirmishes that started on Wednesday and threatened to spill out into an all out war, before a ceasefire was announced on Saturday. However, tension still lingers in the air and prolonged India-Pakistan hostilities could have massive implications for energy markets alongside any human and financial fallout.
The hostilities followed India’s decision to launch a targeted missile and air-strike operation against Pakistan – Operation Sindoor – following a deadly terror attack on April 22 by militants in Pahalgam in Indian administered Kashmir killing 26 people.
India blamed the attack on Pakistan-based terrorists and its government’s support for terror outfits, a claim the country denied. While a ceasefire brokered by the international community is holding at the time of writing, oil and gas and hydropower segments of both nations will most likely feel the heat in the wake of prolonged India-Pakistan tensions.
Oil And Gas Market Scoresheet
In terms of respective market sizes, India is the world’s third-largest consumer of crude oil, behind only the U.S. and China. According to the International Energy Agency, India consumes on average 5.4 million barrels per day of oil, nearly 90% of which is imported.
It remains on track to account for 25% global oil demand growth in 2025, according to the U.S. Energy Information Administration – the statistical arm of the Department of Energy.
Pakistan’s oil demand rate is considerably lower and has been fluctuating wildly south of 0.4 million bpd, though analysts at Rystad Energy estimate it to be currently as low as 0.25 million bpd, nearly 80% of which is imported. Both nations are also heavy importers of liquified natural gas, though Pakistan’s energy mix is more reliant on it than India’s.
In 2024, Pakistan imported 8 million metric tons per year of LNG, according to S&P Global Commodity Insights. India imported 47.7 million metric tons per year of LNG, according to the IEA last year – nearly six times as much albeit to service a more diverse energy mix for a substantially bigger economy.
Hydropower And The Indus Water Treaty
Hydropower and the role of the Indus Waters Treaty – a bilateral resource distribution treaty brokered by the World Bank in 1960 between India and Pakistan – also comes into view at a time of conflict. It governs the sharing agreements for the Indus River System.
But given that India is upstream on the rivers’ path often raises fears in Pakistan that the former could cripple its access. Such fears came into sharp focus after India suspended the treaty on April 23, a day after the Pahalgam terror attack. Water resource aside, the development has huge implications for hydropower in both countries, and particularly so for Pakistan.
The suspension potentially threatens nearly 90% of Pakistan’s installed hydropower capacity, according to the region’s World Bank listed project capacity. The largest of these is the 4.9GW Tarbela Dam on the Indus river. The region and its hydropower projects provide a quarter Pakistan’s energy supply, according to GlobalData.
By contrast, India remains less reliant on hydropower in general, and the Indus River system’s role in its hydropower generation capacity in particular. Projects in the region account for less than 3GW or 6% of India’s total hydropower generation. Furthermore, hydropower itself constitutes less than 10% of India’s energy mix, according to an external affairs spokesperson for the country’s government.
High Stakes
Whether its the issue of disruption, infrastructural attacks or maintaining the security of supply – the stakes are more ominous for Pakistan in the event of heightened attacks or a prolonged conflict with India.
Were a supply disruption to happen, India has strategic oil reserves – styled by the Narendra Modi administration on the U.S. strategic petroleum reserves over the last decade. While India’s capacity is currently nowhere near that of the U.S., energy ministry sources suggest it is enough to keep the nation going for just over 40 days, and maybe boosted further by commercial stockpiles that can be commandeered in a national emergency for another 21 days.
By contrast, Pakistan has no official strategic reserves to call on and commercial stockpiles worth around two weeks worth of headline consumption, according to market sources in the country. Put bluntly, its a vastly inferior level of emergency preparedness and poor economics on Pakistan’s part, even when servicing an economy several times smaller than India’s.
Of course, coastal energy infrastructure from LNG terminals to refineries remains vulnerable to attacks by either nation on its sparring partner in a conventional war. However, India’s oil and gas importation and processing portfolio as well as its capacity remains geographically better spread over a much larger area compared to Pakistan’s when it comes safeguarding strategic energy infrastructure.
Despite the ceasefire, both nations are expected to tap the international markets oil and gas with renewed vigor. This may be seen as mildly supportive of spot prices in Asia for cargoes to the region, but currently unlikely to morph into a war premium for either India or Pakistan given the sheer volume of crude out in the market.
And while 0il and LNG exporters’ anxiety may be heightened in terms of shipping to the region, India’s sheer clout in the market implies the cargoes will keep on heading in that direction. But beyond oil and gas, disruption to hydropower will likely be of much greater concern to Pakistan’s government.
It remains unclear how things will unfold with regard to the Indus Waters Treaty. Pakistan has protested its suspension by India but the World Bank has said it was only a facilitator back in 1960 and cannot intervene.
International efforts are underway to find a solution. But in theory India could potentially either covertly or overtly restrict the water flow from Indus River system to Pakistan if tensions do not ease. This would upend Pakistan’s grid stability and the ability of its hydropower plants to meet peak power demand.
With the Pakistani summer approaching fast, the potential for widespread countrywide blackouts – should India-Pakistan hostilities continue – cannot be ruled out. In summation, the stakes remain pretty high for the wider energy market and that of both nations, but Pakistan potentially appears to be in a particularly vulnerable position.