{"id":2827,"date":"2026-07-03T05:58:38","date_gmt":"2026-07-03T05:58:38","guid":{"rendered":"https:\/\/bordersandbeyond.in\/blog\/?p=2827"},"modified":"2026-07-13T11:31:52","modified_gmt":"2026-07-13T11:31:52","slug":"the-hormuz-test-what-the-strait-of-hormuz-oil-crisis-reveals-about-indias-energy-security","status":"publish","type":"post","link":"https:\/\/bordersandbeyond.in\/blog\/the-hormuz-test-what-the-strait-of-hormuz-oil-crisis-reveals-about-indias-energy-security\/","title":{"rendered":"The Hormuz Test: What the Strait of Hormuz Oil Crisis Reveals About India\u2019s Energy Security"},"content":{"rendered":"\t\t
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In early March 2026, restaurants across the entire country started shutting down. In Gujarat, the ceramic industries got shut down as well. The fertilizer industry became affected because urea production declined. <\/p>\n

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Rural families were forced to return to kerosene and firewood, which they had spent decades moving away from. This was not because of a general power cut or a labour strike, but because of the oil crisis produced by the Iran war. This was the sudden reality of the India energy crisis triggered by the conflict in West Asia, the third largest oil importer and fifth largest economy of the world. India felt the force of the war, even though it did not involve itself directly or militarily. A strait that it did not control shook its energy sector.<\/p>\n

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The closure of the Strait of Hormuz on February 28, 2026, triggered by the US-Israeli war against Iran and the assassination of Supreme Leader Ali Khamenei, caused the largest disruption in the history of the global oil market. For the world, this is a crisis of oil prices, but for India, it is an opportunity to reckon with the gap between the idea of strategic autonomy and India\u2019s actual energy dependency. This blockade has made that gap impossible to ignore.<\/p>\n

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The Strait of Hormuz Blockade and the India Energy Crisis<\/h2>\n

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Around 20 million barrels of oil flow through the Strait of Hormuz each day, which is about 25% of trade through sea worldwide, and 20% of all liquefied natural gas exports worldwide. <\/p>\n

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When Iran closed the Strait of Hormuz, the impact was felt by the entire world. Some nations like India were affected directly because of a lack of efficient alternatives.<\/p>\n

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In January 2026, when Indian refiners were increasing their purchases from Middle East producers, approximately 40\u201353% of India\u2019s crude oil imports were sourced through the Strait of Hormuz. Those amounted to around 5.5 million barrels each day, with the Gulf also accounting for 55% of liquefied natural gas and 88% of liquefied petroleum gas imports. <\/p>\n

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The blockade resulted in the loss of approximately 3 million barrels per day and required all refiners to find alternative sources of crude oil.<\/p>\n

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In light of this, it is easy to see how India is more vulnerable than China:-<\/p>\n

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Strategic Reserve Comparison:-<\/p>\n

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 \u2022 China: ~90+ days of strategic petroleum reserve cover<\/p>\n

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 \u2022 India (combined strategic + commercial): ~60\u201374 days<\/p>\n

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 \u2022 India (SPR alone): ~9\u201310 days<\/p>\n

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The margin provides very little cushion against a disruption of this scale. Even with the ceasefire on April 8, a large portion of all traffic through the Strait of Hormuz fell well below pre-war numbers.<\/p>\n

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There have been severe economic impacts of the current India energy crisis. In early 2026, oil prices surged. Crude oil increased from around $69 to $113 per barrel, while Brent crude went beyond $120 per barrel within a single month. <\/p>\n

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For India, the impact was particularly sharp. The price of its crude basket went from under $75 to between $115 and $140 per barrel. <\/p>\n

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Wholesale inflation rose to 3.88% in March; retail inflation climbed to 3.4%. HSBC\u2019s PMI reading shows India\u2019s private sector activity at its lowest level since October 2022.<\/p>\n

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The impact on GDP is now being officially measured. Experts now think India\u2019s economy will grow more slowly than expected. The growth forecast has been reduced from around 7% to 6\u20136.5%. Higher oil prices are the key drivers of this. <\/p>\n

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Each time oil prices rise by $10 per barrel, India\u2019s economic growth simultaneously falls by about 0.1-0.2%. This leads to a 0.2% increase in inflation and the current account deficit by 0.4-0.5% of the GDP. If oil prices reach $100 per barrel, India\u2019s current account deficit has the potential to rise to nearly 3% of GDP.Before the crisis, it was projected at 1.5%. <\/p>\n

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So in practical terms, India\u2019s import bill increases while its growth and purchasing power take a quiet but meaningful hit.<\/p>\n

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The rupee has depreciated sharply as foreign capital exits Indian markets for dollar-denominated safety. MUFG Research estimates USD\/INR could climb above 95 if the conflict continues, and beyond 97.50 if Brent crude holds near $120\/barrel amid sustained shortages.<\/p>\n

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A weaker rupee makes imported oil even more expensive, compounding the crisis it was caused by.<\/p>\n

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At its April 2026 meeting, the RBI held interest rates steady, a clear evidence of a stagflation trap. Raising rates would make economic growth redundant but holding them steady allows inflation to continue rising. <\/p>\n

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The core dilemma is that the challenge cannot be resolved through monetary policy alone, because its source is geopolitical rather than domestic.<\/p>\n

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The Human and Industrial Cost<\/h2>\n

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The macro numbers tell only part of the story. The real cost of this crisis shows up at the ground level, in kitchens, factories, and farms across the country.<\/p>\n

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LPG is the primary cooking fuel for over 330 million Indian households, a status built over years of government subsidy through the Ujjwala scheme, which brought clean cooking fuel to rural India\u2019s poorest families. With 88% of India\u2019s LPG imports flowing through the Strait of Hormuz, the blockade hit this supply chain almost immediately.<\/p>\n

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By early March, booking gaps stretched up to 45 days across multiple cities. Black market prices hit \u20b94,000 \u2013 \u20b95,000 per cylinder, four to five times the subsidised rate.<\/p>\n

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The government responded fast: households with piped natural gas connections were ordered to surrender their LPG cylinders within 90 days, and oil marketing companies were directed to block LPG bookings digitally. In March 2026 alone, India installed piped gas connections for 580,000 new households.<\/p>\n

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The industrial fallout has been just as severe. Gujarat\u2019s ceramics industry, almost entirely dependent on piped gas and LPG for kiln firing, shut down as supplies dried up.<\/p>\n

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In Mumbai, restaurants closed fully or partially, triggering layoffs in one of the city\u2019s largest employment sectors. Across India\u2019s pharmaceutical industry, production costs rose sharply as energy input prices spiked.<\/p>\n

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The disruption in LNG supplies from Qatar cut production at three large urea plants, threatening India\u2019s long-term food security. Since a large share of India\u2019s fertilizer consumption is imported, and urea is agriculture\u2019s key input, domestic fertilizer prices have risen by an estimated 100%, straining both the government\u2019s subsidy burden and an already stretched fiscal deficit.<\/p>\n

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With India accounting for roughly 25% of the world\u2019s rice exports, this fertilizer crisis is a food security problem whose consequences reach far beyond economics.<\/p>\n

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The Russian-Iran Double Squeeze<\/h2>\n

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India\u2019s energy crisis in 2026 is not simply the product of the Hormuz blockade. It is the product of a more complex strategic miscalculation that left India exposed on two fronts simultaneously.<\/p>\n

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When the West cut back on Russian oil after the Ukraine war, India did the opposite, buying up discounted Russian crude. We bought around 2.5 million barrels daily from Russia in 2026. This arrangement protected the Indian economy from earlier volatility.<\/p>\n

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But this dependence came with geopolitical strings attached.<\/p>\n

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As India negotiated its long-sought trade deal with the United States, Washington made clear that continued high-volume Russian oil purchases were incompatible with the bilateral relationship India was seeking. India adjusted, reducing its Russian crude intake as the trade deal took shape.<\/p>\n

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Then, on April 11, the US waiver permitting Indian purchases of Russian crude expired without renewal. The timing was devastating.<\/p>\n

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India had already cut Russian oil purchases to show good faith to Washington. At the same time, it had lost 3 million barrels per day of Gulf supply through the Hormuz closure. Both supply lines it relied on to manage energy costs were disrupted in the same month, a triggering a scramble for alternatives in a global market already stretched to its limits.<\/p>\n

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Making matters worse, India found itself competing directly with China for the limited Russian crude still on offer. China holds far greater leverage: its large strategic reserves buy it time to wait for better terms, its CIPS payment system is less exposed to US secondary sanctions, and its sheer purchase volume gives it pricing power India cannot match.<\/p>\n

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India\u2019s private sector activity slowed while China kept buying.<\/p>\n

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The Dollar Dominance Trap<\/h2>\n

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The most important and least discussed dimension of India\u2019s energy crisis in 2026 is not the Strait of Hormuz. It is the question of why a sovereign nation of 1.45 billion people, the world\u2019s fifth-largest economy, does not have meaningful autonomy over where it buys its oil.<\/p>\n

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The answer lies in the architecture of dollar dominance. It is a system that gives the United States coercive power over the energy decisions of sovereign nations without requiring a single formal legal instrument directed at those nations.<\/p>\n

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The mechanism is secondary sanctions. These aren\u2019t sanctions on India directly, they\u2019re a warning that any country, company, or bank transacting significantly with sanctioned entities, whether Russian oil producers or Iranian port operators, risks being cut off from the US financial system.<\/p>\n

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That threat is existential for any major Indian bank or company. Roughly 80% of global oil trade is settled in US dollars, so nearly every significant oil transaction worldwide passes through the dollar-clearing system, with or without American parties involved. Being cut off from it is a commercial death sentence.<\/p>\n

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CAATSA gives the US legal authority to punish countries doing significant business with Russia\u2019s military or energy sectors, and the Treasury\u2019s OFAC enforces it, with secondary sanctions producing effects on Indian banks and refiners well beyond their original target.<\/p>\n

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The G7 set a $60\/barrel price cap on Russian oil, enforced through access to Western shipping, insurance, and transport services. Because most global shipping insurance is underwritten in London, this cap effectively binds any country wanting access to that infrastructure, G7 member or not.<\/p>\n

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India\u2019s vulnerability to this architecture runs deeper than China\u2019s, for structural reasons. India\u2019s trade surplus with the US stands at nearly $58 billion, and the US is India\u2019s largest export market, giving Washington enormous leverage over India\u2019s energy choices through the threat of lost market access or derailed trade talks.<\/p>\n

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India\u2019s banking sector also remains far more integrated into Western dollar-clearing infrastructure than China\u2019s. Beijing has spent a decade building CIPS as an alternative; India has built no comparable parallel system.<\/p>\n

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The March 2026 emergency illustrates this architecture in its purest form. When the US Treasury granted India a temporary 30-day waiver to purchase stranded Russian oil cargoes, it wasn\u2019t because India had a legal right to it. It was because global oil prices were threatening American consumers, and because Washington needed India\u2019s cooperation elsewhere.<\/p>\n

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The moment those calculations shifted, the waiver wasn\u2019t renewed. In this framework, India\u2019s energy security isn\u2019t a matter of Indian sovereign decision-making, it\u2019s a variable in American strategic calculations.<\/p>\n

<\/p>\n

This is the dollar dominance trap. And India sits squarely inside it.<\/p>\n

<\/p>\n

India’s Naval Involvement <\/h2>\n

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On 7 March 2026, the Indian government proposed deploying the Indian Navy to protect its oil supply chain along and around the Strait of Hormuz. It was a significant signal of India\u2019s willingness to act unilaterally to protect its energy interests as the Indian Ocean turned into contested space.<\/p>\n

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It also revealed just how vulnerable India felt in that moment.<\/p>\n

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The naval proposal reflects a broader diplomatic balancing act. India must preserve US goodwill to protect its trade deals and market access. It must keep channels open with Iran, a country it has historically maintained functional relations with, and where its $120 million Chabahar port investment sits under the state-run India Ports Global (Adani Group had explored operating terminals there back in 2017, though the project has stayed under government control), despite Iran being under attack.<\/p>\n

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It must also reassure Gulf States, especially Saudi Arabia, that it remains a dependable partner, all while avoiding the appearance of taking sides in a conflict that has divided the global community.<\/p>\n

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There is growing concern in New Delhi about Pakistan\u2019s mediating role between the US and Iran. Both sides have held negotiations in Pakistan, with Prime Minister Shehbaz Sharif serving as a point of contact.<\/p>\n

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Should Pakistan\u2019s diplomatic role succeed, it would gain enhanced leverage with both the US and the Gulf states to India\u2019s detriment. As an emerging regional mediator, Pakistan would also gain influence over Gulf investments, US strategic interests, and West Asian affairs, precisely the areas where India has invested considerable time building its own position.<\/p>\n

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The Ceasefire That Changed Nothing <\/h2>\n

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The US and Iran established a ceasefire on April 8, 2026, prompting an initial sense of hope that the worst would soon pass. That anticipation quickly died.<\/p>\n

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In the ceasefire\u2019s aftermath, shipping traffic through the Strait of Hormuz fell even lower than before the war began. The IEA\u2019s Maritime Chokepoints Shipping Monitor confirmed flows had not recovered to normal.<\/p>\n

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The reasons are structural: insurance risk on vessels transiting the strait remains elevated, shipping firms that suspended operations haven\u2019t resumed, and mines laid by the IRGC continue to pose navigational hazards. The ceasefire stopped the shooting. It did not reopen the artery.<\/p>\n

<\/p>\n

For India, this matters profoundly. Energy security planning cannot assume a ceasefire restores the pre-war normal, the Strait of Hormuz has now proven it can be interrupted for an extended period.<\/p>\n

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Any serious Indian energy strategy must plan for future closures, whether triggered by this conflict\u2019s resumption, a new confrontation, or deliberate Iranian pressure. A chokepoint that has been weaponised once will remain a point of vulnerability indefinitely.<\/p>\n

<\/p>\n

What India Must Do<\/h2>\n

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This is not the first time India\u2019s energy dependence has left it exposed. The 1991 Gulf War hurt India\u2019s economy and forced economic reforms. The 2022 Ukraine war pushed India toward cheaper Russian oil. Each crisis produced tactical responses without structural transformation.<\/p>\n

<\/p>\n

The question now is whether 2026 is different, whether this shock finally forces India to fix the architecture of its energy vulnerability, rather than just managing its symptoms.<\/p>\n

<\/p>\n

Five strategic priorities must be of utmost importance to India right now.<\/p>\n

<\/p>\n

1. Expanding Strategic Petroleum Reserves in India<\/strong><\/h3>\n

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A 30-day strategic petroleum reserve buffer against the world\u2019s largest oil supply disruption is extremely inadequate. India should set a target of 90 days of strategic cover, comparable to IEA member standards, and treat its construction as a national security imperative rather than an infrastructure project. The capital cost of building this reserve is a fraction of the economic damage that another Hormuz closure would inflict.<\/p>\n

<\/p>\n

2. Accelerated Transition to Domestic Renewable Energy<\/strong><\/h3>\n

<\/p>\n

India has the solar and wind resources to reduce its import dependence. The India energy crisis has made the economic case for this transition more compelling than any climate argument: every percentage point of import substitution through domestic renewables is a percentage point of protection from geopolitical shocks. The government\u2019s response of installing 580,000 new piped gas connections in a single month demonstrates the capacity for rapid deployment when political will exists. That same urgency must be applied to solar and wind at scale.<\/p>\n

<\/p>\n

3. Development of Rupee-Based Oil Trade<\/strong><\/h3>\n

<\/p>\n

India has already taken initial steps toward rupee settlement with some Gulf partners. The Hormuz oil crisis has demonstrated why rupee oil trade matters: dollar dependency is not merely a financial inconvenience but a vulnerability that directly constrains India\u2019s energy choices. Expanding rupee-settled oil trade reduces exposure to US secondary sanctions and builds the kind of payment infrastructure that strategic autonomy requires.<\/p>\n

<\/p>\n

4. Investment in Alternative Supply Routes and Overland Connectivity<\/strong><\/h3>\n

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The India-Middle East-Europe Economic Corridor (IMEC) is not merely a trade project but an energy security framework. Accelerating IMEC\u2019s development, particularly the maritime-to-overland connectivity through the UAE and Saudi Arabia, creates supply chain alternatives that do not depend on Hormuz remaining open. Similarly, India\u2019s connectivity to Central Asian energy producers through routes that bypass Pakistan must be prioritised.<\/p>\n

<\/p>\n

5. Recalibration of the US-India Energy Relationship<\/strong><\/h3>\n

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The most politically complex priority is a recalibration of the terms of the US-India relationship on energy. The current framework in which India\u2019s energy choices are effectively held hostage to trade deal negotiations and US strategic calculations is not sustainable. India must negotiate explicitly for energy security pull-backs from the US sanctions architecture, rather than depending on temporary waivers that expire at US\u2019 discretion. This is not a demand for confrontation with the United States. It is a demand for an equal relationship.<\/p>\n

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Conclusion <\/strong><\/h2>\n

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India\u2019s dependency on the Strait of Hormuz runs far deeper than anticipated. The March 2026 crisis revealed not just a weak link in India\u2019s energy supply chain, but serious tensions within its broader strategic posture, a country that aspires to strategic autonomy, built on energy foundations controlled by external powers.<\/p>\n

<\/p>\n

The restaurants that shut down across India in March 2026 were not collateral damage from a remote conflict. They were a signal.<\/p>\n

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India\u2019s GDP growth has been revised down. Its current account deficit is widening. Its currency is under pressure, and its central bank is caught in a stagflation trap all because of decisions made in Washington, Tehran, and Tel Aviv. A country of India\u2019s size, ambition, and civilisational weight cannot afford an economy this dependent on the strategic calculations of others.<\/p>\n

<\/p>\n

The 1991 crisis forced India to liberalise its economy. The 2026 crisis should compel it to overhaul its energy strategy, not by pursuing non-alignment as an end in itself, but by building new supply sources, developing the payment infrastructure to secure energy on its own terms, and forging the diplomatic relationships that turn energy security into a strategic asset rather than a perpetual aspiration.<\/p>\n

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The strait will eventually reopen. The vulnerability it exposed will remain indefinitely unless India addresses it.<\/p>\n

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In early March 2026, restaurants across the entire country started shutting down. In Gujarat, the ceramic industries got shut down as well. The fertilizer industry became affected because urea production declined.  Rural families were forced to return to kerosene and firewood, which they had spent decades moving away from. This was not because of a […]<\/p>\n","protected":false},"author":3,"featured_media":2828,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[34],"tags":[],"class_list":["post-2827","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-national-power-defense-strategic-capabilities-desk"],"_links":{"self":[{"href":"https:\/\/bordersandbeyond.in\/blog\/wp-json\/wp\/v2\/posts\/2827","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bordersandbeyond.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bordersandbeyond.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bordersandbeyond.in\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/bordersandbeyond.in\/blog\/wp-json\/wp\/v2\/comments?post=2827"}],"version-history":[{"count":12,"href":"https:\/\/bordersandbeyond.in\/blog\/wp-json\/wp\/v2\/posts\/2827\/revisions"}],"predecessor-version":[{"id":2939,"href":"https:\/\/bordersandbeyond.in\/blog\/wp-json\/wp\/v2\/posts\/2827\/revisions\/2939"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bordersandbeyond.in\/blog\/wp-json\/wp\/v2\/media\/2828"}],"wp:attachment":[{"href":"https:\/\/bordersandbeyond.in\/blog\/wp-json\/wp\/v2\/media?parent=2827"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bordersandbeyond.in\/blog\/wp-json\/wp\/v2\/categories?post=2827"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bordersandbeyond.in\/blog\/wp-json\/wp\/v2\/tags?post=2827"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}