Why India and Sri Lanka must build energy interdependence

This article is authored Cchavi Vasisht, associate fellow, Chintan Research Foundation, New Delhi.

When the Strait of Hormuz was disrupted this year, the shock did not stay in the Gulf. Brent was around $101 in October 2026, more than 54% above a year earlier, and analysts do not expect West Asian output to normalise before early 2027. It is in this context that Sri Lanka, which imports all its oil, felt it within weeks: Fuel prices went up by as much as 40%, electricity tariffs by 18%. India is not insulated either. It imports about 89% of its crude, and roughly 40% of its imports pass through Hormuz. Its strategic reserve covers nine to ten days; with commercial storage, about 74 days of net imports, short of the International Energy Agency’s 90-day benchmark.

Ships recently anchored off Oman’s coast near the Strait of Hormuz.

It is this vulnerability that the two neighbours share, which makes building cooperation and interdependence attractive. The past few weeks show how fast the two sides are moving closer to the agenda of securing energy. The recent power officials meeting in Mumbai on October 9 and 10 proposed carrying Nepali hydropower to Sri Lanka through India. On October 12, President Anura Kumara Dissanayake told Colombo’s business community that policy must now shift from stabilisation to growth.

An oil shock is never just an energy event. It becomes a balance-of-payments crisis, then a political one. A similar crisis had hit Sri Lanka in 2022. But recovery has also been real with the World Bank reporting that output has been back at pre-crisis levels. What is concerning is that this year again has weakened its position because of external shocks. Fuel imports cost 4.08 billion rupees in the first eight months of 2026 alone, and could reach 6 billion rupees by year-end. Fuel subsidies cost about 60 billion rupees in the first five months of the crisis, and a 70-rupee diesel subsidy for October to December is estimated at 41 billion rupees.

The proposed HVDC link is the clearest test. The April 2025 memorandum describes a 320 kV, 1,000 MW bipole between Madurai and Mannar, with a first phase of 500 MW. High Commissioner Santosh Jha, in a recent interview, presented the link as initially supplying lower-cost power to Sri Lanka, with exports to India possible once offshore wind is developed.

A cable that carries electrons one way builds dependence. One that carries them both ways builds interdependence. Sri Lanka’s endowment supports the second: about 16 GW of solar potential and wind of 50 GW or more, against India’s 505 GW grid, which can act as virtual storage by absorbing Sri Lankan surpluses.

Simultaneously, it is also important to build adequate domestic capacity, invest in renewables and storage, technical, contractual and regulatory protections, and diversify sources and routes. The interconnection should therefore be supplemented with domestic capacity. The President says Sri Lanka has added 1,500 MW of solar this year, with 1,100 MW more contracted for next year. Renewables are about 69% of generating capacity, and for four consecutive days power was generated without burning diesel in thermal plants. But the problem is during the night. That is why batteries matter as much as cables. Tenders cover 160 MW of storage, 130 MW of it due by November, and with 250 MW under evaluation.

Built in the 1920s and 1930s to fuel the Royal Navy, Trincomalee’s roughly 99 tanks hold nearly 1.2 million tonnes and have stood largely idle for decades. The 1987 Indo-Lanka Accord promised joint restoration, but implementation stalled. In April 2025, India, Sri Lanka and the UAE signed a trilateral MoU covering tank-farm refurbishment, bunker fuel, a possible refinery and a bi-directional pipeline, the region’s first arrangement of this kind.

But there are other challenges as well. Sinopec’s $ 3.7 billion Hambantota refinery, the largest foreign investment in Sri Lanka’s history, is stuck over how much output can be sold locally. Indian-backed wind projects of about 484 MW at Mannar and Pooneryn had Cabinet approval and an environmental assessment, yet did not proceed.

Sri Lanka’s policy volatility and opaque procurement, including allegations around coal, weaken its credibility. India should compete on reliability, transparency and price.

The sea is the other dimension. The Indian Ocean carries an estimated 60 to 80% of the world’s oil trade and securing it is essential. India and Sri Lanka signed their first defence MoU in April 2025, and last month, defence minister Rajnath Singh proposed an integrated Maritime Domain Awareness system. But energy is absent from its threat list. There should be tanker traffic--the Trincomalee jetty, the Nagapattinam–Trincomalee pipeline route and subsea power and data cables should count as critical maritime infrastructure. There is a defence MoU for the sea and an energy MoU for the shore. The task is to join them.

And finally, critical minerals must complete the picture. India needs about 60,000 tonnes of graphite a year, Sri Lanka has never produced more than about 15,000. This year the Budget announced the Minerals Corridor in the four southern states, and it would be beneficial if the two sides can link these corridors.

Therefore, interdependence is built when flows run both ways, each side holds something the other needs, and institutions outlast any single government. Sri Lanka has the wind, the sun, the harbour and the location India has the scale, the capital and the technology. The choice is clear, to cooperate and create interdependence.

(The views expressed are personal)

This article is authored Cchavi Vasisht, associate fellow, Chintan Research Foundation, New Delhi.