Diversify or Disrupt: Why access volatility is redefining energy security

For nearly four decades, energy security was framed around a single dominant concern: price volatility. Governments worried about oil shocks, refiners built hedging strategies, and policymakers focused on cushioning fiscal exposure during periods of high crude prices. When prices fell, the narrative reversed — cost savings, inflation relief, and balance-of-payments comfort took centre stage.

That framework no longer captures the real risk confronting energy systems.

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The defining challenge of the mid-2020s is not price volatility, but access volatility — the growing uncertainty over whether energy can be sourced, transported, insured, financed, and delivered reliably amid sanctions, conflicts, logistics disruptions, and regulatory fragmentation. In this environment, barrels that appear attractive on price but are vulnerable on access create systemic risk rather than security.

From price cycles to access shocks

Global oil demand today stands at roughly 102 million barrels per day (mbpd), while supply capacity — boosted by US shale, Middle Eastern expansions, and new deepwater production — has pushed the market into a phase of structural oversupply. On paper, this should be a buyer’s market.

Yet despite comfortable balances, supply chains are increasingly fragile. Around 65 percent of global oil trade moves by sea, and close to 40 percent of that seaborne volume transits through strategic chokepoints such as the Strait of Hormuz, Bab el-Mandeb, the Suez Canal, and the Panama Canal. Disruptions in any of these corridors now translate not just into freight delays, but into insurance withdrawals, vessel rerouting, and financing complications — factors that can interrupt physical flows even when oil is available.

Unlike price volatility, which is cyclical and market-driven, access volatility is non-linear and political. It often emerges suddenly, escalates rapidly, and resolves unpredictably.

Concentration risk: The quiet accumulator

Periods of geopolitical disruption often create discounted supply from specific regions. Rational buyers respond to price signals, especially when margins are under pressure. Over time, commercial optimisation can quietly evolve into concentration risk.

Energy economists generally view dependence beyond 30 percent on a single source or geography as a threshold where vulnerability increases sharply. Above this level, disruptions cease to be marginal inconveniences and begin to pose systemic threats — particularly when compounded by shipping, insurance, or payment restrictions.

Recent years have shown how sanctions regimes, export controls, and scrutiny of “shadow logistics” can elevate freight costs by 20–40 percent, even when crude itself trades at a discount. The nominal savings on the barrel are often offset — sometimes more than offset — by higher logistics, compliance, and risk premiums.

Optionality: The new core of energy strategy

The conventional response to concentration risk is diversification. But diversification alone is insufficient unless it translates into optionality.

Optionality is the ability to switch — quickly and economically — between crude grades, suppliers, routes, and contracts without disrupting operations or sacrificing margins. It is not an insurance policy; it is a structural capability.

In practice, optionality is built across refinery flexibility, contract portfolios, logistics access, and storage buffers. Countries and companies that invested in these capabilities over the last two decades are now discovering that those investments have become strategic assets.

Refining systems as shock absorbers

Globally, refining capacity stands at approximately 103 million bpd. Less than 30 percent of global refineries are configured to handle very heavy, high-sulphur crudes efficiently, while high-complexity refineries account for a disproportionate share of resilience.

High-conversion refineries — equipped with cokers, hydrocrackers, and advanced desulphurisation units — can pivot between light-sweet, medium, and heavy crudes with limited yield loss. This flexibility allows operators to arbitrage geopolitical risk rather than absorb it.

Logistics: Where access risk materialises

During the Red Sea disruptions of 2024–25, Asia-bound crude shipments via the Cape of Good Hope experienced voyage extensions of 10–15 days, pushing up freight rates and insurance premiums by as much as 25–30 percent.

Such disruptions illustrate a critical reality: energy security failures increasingly originate outside the oil market itself. They arise from shipping constraints, port disruptions, canal bottlenecks, and insurance exclusions.

Strategic Reserves: Time, not immunity

Strategic petroleum reserves remain a cornerstone of energy security. Among OECD countries, the benchmark of 90 days of net import cover remains the reference standard, while many non-OECD economies operate with 30–60 days.

Globally, total strategic and commercial emergency stocks exceed 1.5 billion barrels, offering significant buffering capacity. However, reserves do not eliminate access risk; they merely buy time.

Oversupply does not mean safety

Oversupply often conceals fragility. Modelling exercises suggest that diversified systems can withstand temporary supply disruptions of 20–30 percent with limited macroeconomic impact, while highly concentrated systems suffer disproportionate losses.

Energy transition and legacy risk

Oil still accounts for roughly 30 percent of global primary energy consumption. Managing legacy fuels intelligently while scaling new energy sources aggressively remains essential to avoid transition fragility.

In the Indian context, this shift towards managing access volatility is anchored in a longer strategic vision articulated by Prime Minister Narendra Modi during his Independence Day address from the Red Fort on August 15, 2022, when he gave a clear national call for India to achieve energy independence by 2047 as part of the ‘Panch Pran’ vision for Amrit Kaal. This foresight deliberately steers the country away from an abrupt or disruptive exit from fossil fuels, instead advocating a calibrated and pragmatic transition.

The approach places strong emphasis on biofuels, provides renewed thrust to nuclear energy as a stable, low-carbon baseload source, and accelerates renewable energy deployment with a stated target of 500 GW of non-fossil capacity. At the same time, it strengthens the core energy system through enhanced domestic exploration and production activities.

Recent experience has reinforced the importance of diversification. India’s crude oil imports from Russia rose to nearly 40 percent at their peak, driven by favourable pricing and availability in a disrupted global market. There is now a conscious and measured weaning away, reflecting the strategic understanding that excessive reliance on any single source — irrespective of short-term commercial attractiveness — runs counter to long-term energy security.

Optionality is the strategy

The energy landscape of the 2020s is defined by uncertainty rather than scarcity. Supply exists, but access is conditional. In such a world, energy security is no longer achieved by chasing the cheapest barrel. It is achieved by building systems that can switch sources, reroute cargoes, and sustain operations without disruption.

Diversification is the starting point. Optionality is the destination.

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