Fuel, food, and dependency: India’s quiet leverage over Nepal’s daily economy
Geography rarely makes headlines, but in the Himalayas it quietly decides the price of a cooking-gas cylinder, the length of a fuel queue, and sometimes the fate of a government. Nepal is landlocked, hemmed. . .
Geography rarely makes headlines, but in the Himalayas it quietly decides the price of a cooking-gas cylinder, the length of a fuel queue, and sometimes the fate of a government. Nepal is landlocked, hemmed by the Tibetan plateau to the north and India on three other sides, and that simple map explains a great deal about why New Delhi enjoys a kind of practical influence over Kathmandu that no treaty could ever grant outright. It flows not from coercion but from the everyday machinery of supply. A Near-Total Reliance on a Single SourceNepal produces no petroleum of its own and operates no refinery, so it imports every litre of petrol, diesel, kerosene, and LPG it consumes. By a 1974 memorandum of understanding, the state-owned Nepal Oil Corporation buys exclusively from India’s Indian Oil Corporation, with import prices adjusted on a fortnightly cycle. The arrangement is, in fairness, a generous one: India exempts Nepal’s fuel from customs and excise duties and supplies it on a bonded basis, sparing landlocked Nepal the cost of sourcing from distant markets. Roughly 70 per cent of those products enter through a single corridor at Birgunj–Raxaul. India is also Nepal’s largest trading partner and the conduit for much of its food, medicine, and industrial inputs. When one neighbour is the gateway for nearly everything essential, the relationship is structurally asymmetric, whatever the goodwill on either side. You Might Be Interested In2015: A Case Study In How Quickly Daily Life UnravelsThe clearest illustration came in the autumn of 2015. Protests by Madhesi communities over Nepal’s newly promulgated constitution choked the southern border crossings for roughly four and a half months. India maintained that the disruption stemmed from unrest on Nepal’s side rather than any official policy, but the effect on Nepal’s economy was immediate and severe. The Nepal Economic Forum later estimated private-sector losses at Rs 202. 5 billion, around $1. 96 billion, close to a quarter of that year’s national budget. For ordinary Nepalis, the abstraction became tangible fast. Petrol sold on the black market at several times its normal price; the government rationed driving to alternate days and urged people to cook with firewood. The UN’s World Food Programme warned that prices of staples such as rice, lentils, and cooking oil had jumped 30 per cent or more, while UNICEF cautioned that millions of young children faced risk from shortages of fuel, food, and vaccines, all coming months after the devastating April earthquake. No single episode demonstrated more vividly how a supply interruption translates, within weeks, into a national emergency. The Search for AlternativesNepal’s response was to look elsewhere, and the obvious direction was north. During Prime Minister K. P. Sharma Oli’s 2016 visit to Beijing, the two countries signed a landmark trade and transit treaty granting Nepal access to Chinese seaports and land ports, with talk of importing petroleum from Kazakhstan via China. The ambition was real, but the logistics proved unforgiving. The Himalayan passes are steep, the roads to Kerung and Rasuwagadhi often barely passable after the monsoon, and as one former ambassador noted, not a single shipment of third-country trade moved through the new route for years. A commercial fuel deal with China was signed in principle more than once and never delivered a usable supply. The more promising path runs through electricity. Nepal’s rivers give it vast hydropower potential, and here the story is one of cooperation rather than dependence. In January 2024, the two countries signed a 25-year agreement envisaging the export of 10,000 MW of Nepali hydroelectricity to India over a decade. Nepal has already become a net power exporter, selling more than 1,000 MW into the Indian grid and even reaching Bangladesh through Indian transmission lines. Yet this, too, deepens integration with India rather than reducing it: the buyer, the grid, and the market all sit south of the border. Even the petroleum relationship is being institutionalised further. The Motihari–Amlekhgunj pipeline, South Asia’s first cross-border fuel pipeline, opened in 2019, and a second phase extending it to Chitwan is now advancing alongside new storage terminals: efficient, cheaper, and binding the two energy systems ever closer together. Supply Chains and the Rhythm of PoliticsThe political consequences inside Nepal track these supply chains closely. The 2015 shortages produced public anger and street protests, and leaders who could promise relief or a pivot toward China gained ground, while the question of how to manage relations with New Delhi became a recurring fault line in coalition politics. Every spike in fuel prices or whiff of a border slowdown reverberates through Kathmandu’s governing arithmetic. None of this requires India to act. The leverage is ambient, embedded in pipelines, depots, power lines, and a border that carries a nation’s daily needs. Nepal’s diversification efforts are sincere and, in hydropower, genuinely fruitful — but for the foreseeable future, the practical levers of Nepal’s economy, and much of its strategic calculus, still run through India.