UPSC Issue at a Glance is an initiative by UPSC Essentials aimed at streamlining your UPSC Current Affairs preparation for the prelims and mains examinations by focusing on issues making headlines. In this edition, we cover the India’s 3F Challenge from a broader perspective. Let’s get started.Taking on critics of the Indian economy amid the ongoing West Asia crisis, Finance Minister Nirmala Sitharaman on Monday (May 25) said that Prime Minister Narendra Modi’s appeals earlier this month to conserve foreign exchange must be understood in the right context. Referring to the economic pressures emerging from geopolitical tensions in West Asia, Sitharaman said, “We should please understand the context of these three Fs: fuel, fertiliser, and foreign exchange.” Earlier this month, the Prime Minister urged the public to change their consumption behaviour by reviving Covid-era measures such as work-from-home, avoiding non-essential foreign travel and gold purchases for a year, among others. These actions would help save the country’s foreign exchange reserves, as most of these activities and purchases require imports. The remarks come at a time when the ongoing conflict in West Asia has started triggering concerns over India’s economic stability, particularly because of its heavy reliance on imports for crude oil and fertilisers.In this backdrop, decoding the “3F challenge” — fuel, fertiliser, and foreign exchange becomes crucial to understand how external geopolitical shocks can impact India’s economy.Question 1: How is the West Asia war affecting India’s energy security and oil import dependence? The West Asia war and the resultant closure of the Strait of Hormuz—currently without an end in sight—is turning out to be a lot more disruptive for global oil flows than initially anticipated, raising concerns all over the world. Global crude oil and fuel prices have surged and recently, the government also increased fuel prices across the country, relaying some of the effect of the higher crude oil prices in the wake of the US-Iran war. Here, to better understand how the West Asia war is impacting India, it becomes important to first understand the status of India’s oil dependence.Story continues below this adThis West Asia crisis is a serious headache for India, the world’s third-largest consumer of crude oil, with an import dependency level of close to 90%, making the economy and the country’s forex reserves vulnerable to oil price shocks. About 40% of the country’s oil imports used to come via the Strait of Hormuz. Crude oil alone is the country’s largest merchandise import. According to Commerce Ministry data, crude oil imports in 2025-26 stood at about $135 billion.So, how is the West Asia crisis affecting India’s economy?The Strait of Hormuz—the narrow waterway between Iran and Oman—is a critical maritime chokepoint that accounted for about a fifth of global oil flows before the West Asia war began on February 28. Since then, vessel movements through the strait have been effectively halted, leading to an unprecedented energy supply crisis.With the effective halt in vessel movements through the Strait of Hormuz, global energy supplies have been hit and prices have skyrocketed. Oil prices have been extremely volatile since the West Asia war began. The crisis has led to retail fuel price surges in a number of countries, with some even forced to ration fuel supplies. Story continues below this adSince, India depends heavily on oil and gas imports to meet its energy needs and the fuel prices in the country are linked to global oil and fuel price benchmarks, India is now also feeling the heat of the West Asia crisis. Notably, while the country has managed to secure adequate crude oil volumes from non-Gulf suppliers and has not faced any oil supply disruption, Indian refiners have been paying for the oil through their nose, spending valuable foreign exchange. While the retail prices of petrol and diesel are deregulated, in practice, the government-owned OMCs — with 90% market share in fuel retail — kept prices stable in consultation with the government. They incurred losses when international oil prices surged, and earned hefty profits when the prices slumped. But the West Asia war and the resultant closure of the Strait of Hormuz goes much beyond the regular volatility in the global oil market. Thus, India has hiked petrol and diesel prices now. UPSC Weekly Concepts Snapshot | Energy storage technologies, Bond Yield and ENSOGiven the severity of the impact and the uncertainty over how long the crisis could last, Prime Minister Narendra Modi also recently appealed for conservation of petroleum fuels, among other measures, aimed at moderating imports and foreign exchange outgo.So, what next?Story continues below this adAs of now, there are too many variables to accurately predict the impact — such as how long the West Asia tensions will continue, how high crude prices will go and how much of the increase the government will pass on to the average Indian consumer.If prices remain anywhere close to the $100-per-barrel level for the full year, that would imply an increase of around 40% over the previous year’s cost. Such a sharp increase would either upend household budgets (if the government entirely relays the price increase) or the government’s budget (in the form of higher borrowings if it decides to bear the brunt itself).Question 2: How is India’s fertiliser sector vulnerable to geopolitical disruptions in West Asia?The West Asia crisis is a reminder of how much India’s agriculture and food security are vulnerable to the vicissitudes of geopolitics, as it is casting a long shadow over India’s agricultural sector, with fertiliser prices rising and supply chains under strain.Fertilisers are food for crops. They supply essential nutrients such as nitrogen (N), phosphorous (P), potassium (K) and sulphur (S) for them to yield grains, fruits or vegetables. India is self-sufficient in the production of most food and non-food crops, barring oilseeds and pulses. But this isn’t so with fertilisers. India hardly has any mineable rock phosphate (for P), potash (K) or elemental sulphur (S) reserves.Story continues below this adIndia is currently 15-20 per cent import-dependent for urea and NPK-based fertiliser (nitrogen, phosphorus, potassium) demand, about 60 per cent of DAP (diammonium phosphate) requirement, and almost all of its muriate of potassium (MOP) needs.The country is the world’s largest importer of urea. India annually consumes 39-40 mt of urea, with 30-31 mt produced domestically and the balance 9-10 mt imported. The Gulf Cooperation Council countries — Oman, Qatar, Saudi Arabia, United Arab Emirates (UAE) and Bahrain — accounted for nearly 40% of India’s urea imports pre-war.Over 60% of its imports of liquefied natural gas (LNG) — the feedstock used for indigenous manufacturing of urea — came from Qatar, the UAE and Oman. Domestic rock phosphate meets only 10 per cent of requirements, potash is almost entirely imported, and sulphur has limited local availability.The tensions around the Strait of Hormuz due to the US-Iran war have disrupted international shipping routes, cutting off key raw material supplies that India’s fertiliser industry depends on. LNG, ammonia, sulphur, DAP, urea, and MOP – all essential to domestic fertiliser production – are sourced largely from countries in the conflict zone.Story continues below this adThe impact of the West Asia crisis is already visible on the ground. India’s urea production is heavily dependent on LNG imports from Qatar, and with those supplies squeezed, several plants have already cut output.Add to this the supply crunch: India needs 19.4 million tonnes of urea for the upcoming kharif season alone, against available stocks of just 5.5 million tonnes as of early April. Domestic production has also taken a hit — urea output fell to 1.5 million tonnes in March against a normal monthly run rate of 2.5 million tonnes, due to disruptions in LNG supplies from the Gulf.If stocks cannot be adequately replenished before kharif planting begins in June, higher farm input costs will translate into higher food prices. A Parliament Standing Committee on Fertilisers on March 14 warned of acute shortages ahead of the Kharif season, calling for a dedicated Fertiliser Supply Security Fund to reduce import dependence over the long term.The present crisis may also be a shot in the arm for India’s fledgling biostimulants industry. Biostimulants, unlike fertilisers, don’t contain nutrients per se. Instead, they are products derived from microbes (bacteria and fungi), soil organic matter (humic and fulvic acids), seaweed extracts and other naturally occurring substances; these can enhance the nutrient use efficiency of the fertilisers applied by farmers. Biostimulants include phosphate solubilising bacteria that convert insoluble P in soil into soluble orthophosphates, which are immediately available for plant uptake and use.So, how has the challenge of fertilisers been addressed? Story continues below this adIn the near term, the government has acted to limit the damage. After a high-level meeting, it was decided to ensure that fertiliser manufacturers receive at least 70 per cent of their average natural gas consumption over the past six months to keep production running. As per the Department of Fertilisers, the overall fertiliser reserves have also risen 36.5 per cent year-on-year to 177.31 lakh metric tonnes, with DAP stocks at 25.13 LMT and urea at 59.30 LMT.Prime Minister Narendra Modi on May 10, while urging citizens to reduce spending on petroleum products and gold in a bid to conserve India’s declining foreign exchange reserves, also recommended reducing the current use of chemical fertilisers by half, citing the significant foreign exchange spent on their imports. Question 3: How is the West Asia crisis impacting India’s foreign exchange reserves?Prime Minister Narendra Modi on May 10 urged Indians to save foreign exchange (forex) by any means necessary. In a recent speech, he called on Indians to stop buying gold for a year. Imports of gold are a huge reason why Indians demand forex. In the same vein, he has also urged Indians to work from home in a bid to reduce the consumption of imported crude oil — another big drain on forex. Here, it becomes important to first know what forex reserves actually are. Forex reserves are an important component of the Balance of Payment (BoP) and an essential element in the analysis of an economy’s external position. In times of crisis, adequate foreign exchange reserves give comfort, acting as a buffer and giving strength to a country’s macroeconomic fundamentals. The RBI has the primary responsibility of collection, compilation and dissemination of data relating to foreign exchange reserves.Story continues below this adIndia’s foreign exchange reserves comprise foreign currency assets (FCA), gold, special drawing rights (SDRs) and reserve tranche position (RTP) in the International Monetary Fund (IMF).So, how is the PM’s demand linked to forex?Udit Misra of The Indian Express explains – The PM’s call for austerity measures comes in the wake of the war in Iran and the associated supply and price shocks of goods like fuel and fertiliser.Indians typically import large quantities of the commodities. When Indians buy goods from outside the country — be it gold or a toothbrush or fertiliser or edible oil — India ends up running down its pile of forex held with the RBI, India’s central bank. That’s because the transaction of importing goods from outside the country involves Indians using their rupees to buy dollars and then using those dollars to import (buy) goods from outside the country.Under normal circumstances, foreigners across the world also buy Indian goods, and thus they use dollars to buy Indian rupees, and this leads to dollars adding to Indian forex reserves with the RBI. But the situation can go off-balance if Indians imports far outstrip Indian exports; in such a scenario, India will keep spending dollars without getting as many in return.If such a situation sustains itself for long, it has two effects: one, India runs down its pile of forex, and two, while this is happening, the Indian rupee’s exchange rate weakens against the dollar (or whatever other currency that India is using to trade).So, how is the West Asia crisis impacting India’s foreign exchange reserves? Geopolitical tensions in West Asia seem to weigh heavily on India’s forex and rupee, as the currency opened 0.16 per cent lower at 95.38 against the US dollar on Tuesday (May 26) after fresh US strikes on Iran.The ongoing West Asia crisis has affected India’s forex position in both direct and indirect ways — from rising crude oil prices increasing the import bill to increasing capital outflow. The current pressure on the forex has not come from a single source. Several pressures have arrived together.Oil India currently imports about 89% of its oil, while domestic oil production has been declining over the past decade. The rise in oil prices — from about $70 per barrel to $113 over the past year — translates directly into increased dollar outflows, with limited ability to produce its way out of the shortfall in the near term. (Image: Google NotebookLM generated) (Image: NootbookLM generated)Dollar systemThe second pressure is the dollar system itself. The dollar remains the centre of global finance. Oil is priced in dollars. In uncertain times, investors return to dollar assets. When the US Federal Reserve keeps interest rates high, or when global investors become risk-averse, emerging markets cannot lead the cycle. They follow it.Capital outflow The fall in forex reserves has also been driven by sustained capital outflows from foreign institutional investors (FIIs) amid heightened global uncertainty. FII outflows in the January-May period were Rs 1.97 lakh crore as foreign investors continued their sell-off in the stock markets.Gold imports Gold imports add another layer of concern. India’s gold import bill for 2025-26 stood at USD 71.98 billion. Imports of machinery help expand future production. But when gold imports rise, dollars leave the country without creating a direct export-generating asset.What is required to deal with the forex issue?Udit Misra of The Indian Express explains, “Cutting consumption in such a stark manner — not buying gold or not going to the office — cannot be a sustainable solution. The only way out of this situation is for India to boost both its domestic production and productivity. It is only when India becomes more efficient as a producer — regardless of what machines we import — that it will be able to grow its share in the global exports market.Similarly, only when India reforms its ease of doing business will it attract fresh investments either from within the country or from outside. Higher levels of exports and/or improved attractiveness in terms of starting and running a business are the actual recipe for dealing with the forex issue in a sustainable manner.Post Read QuestionsPrelims(1) In the context of global oil prices, “Brent crude oil” is frequently referred to in the news. What does this term imply? (UPSC CSE 2011)1. It is a major classification of crude oil.2. It is sourced from the north sea.3. It does not contain sulphur.Which of the statements given above is/are correct?(a) 2 only(b) 1 and 2 only(c) 1 and 3 only(d) 1,2, and 3(2) Consider the following statements:1. India depends on imports to meet over 88% of its crude oil needs, 40% of which depend on the Strait of Hormuz.2. As for natural gas, India’s import dependency is about 50%, and almost half of India’s liquefied natural gas (LNG) imports come via the Strait of Hormuz.3. In the case of liquefied petroleum gas (LPG), India’s reliance on imports is 60%, and 90% of those come through the Strait of Hormuz.How many of the statements given above are correct?(a) Only one(b) Only two(c) All three(d) NoneMainsThe question of India’s Energy Security constitutes the most important part of India’s economic progress. Analyse India’s energy policy cooperation with West Asian countries. (UPSC CSE 2017) Prelims Answer Key 1. (b) 2. (c)(Sources: Nirmala Sitharaman flags ‘3F’ concerns, Petrol, diesel prices increased by Rs 3 each. Could more hikes be on the cards?, West Asia war impact on oil market, West Asia conflict disrupts fertiliser supply, Iran war: The fertiliser challenge India faces, Is a weakening rupee always a sign of economic failure?, Why PM Modi’s call to save forex could slow down India’s growth) Click Here to read the UPSC Essentials magazine for May 2026. Share your views and suggestions in the comment box or at manas.srivastava@indianexpress.com Subscribe to our UPSC newsletter. Stay updated with the latest UPSC articles by joining our Telegram channel – Indian Express UPSC Hub, and follow us on Instagram and X.