Bangladesh To Nepal, How India’s Fuels Power South Asian Neighbours’ Economy Explained

Last Updated:March 11, 2026, 13:01 IST

Neighbourhood First Policy Explained: By providing petroleum products, India helps South Asian neighbours such as Nepal, Bangladesh, Sri Lanka, Bhutan manage energy security

With its fuel reserves depleted and to prevent shortages amid the US-Israel-Iran war, Bangladesh has formally requested an additional 50,000 metric tonnes of diesel from India over the next four months. An immediate 5,000 tonnes arrived in Bangladesh on March 10.

This is just one the several examples of how, over the years, India has emerged as the central pillar of energy security for its immediate neighbours, with the Indian Oil Corporation (IOC) and other entities supplying essential petroleum products — petrol, diesel, and ATF — to Bangladesh, Nepal, and Sri Lanka.

This ‘Neighbourhood First’ policy approach has transformed India into a vital energy hub, sustaining transportation, power generation, and agriculture in these nations during global supply disruptions. India’s role as a regional energy hub is a cornerstone for the economies of South Asian neighbors like Nepal, Bangladesh and Sri Lanka.

By providing a stable, reliable supply of refined petroleum products — often through dedicated cross-border pipelines — India helps these nations manage energy security, reduce transportation costs, and maintain essential services like agriculture and transport.

India is not just a supplier but a stabiliser, providing fuel during global crises.

PM Narendra Modi’s ‘Neighbourhood First’ Policy

The Neighbourhood First Policy (NFP) is a core component of Prime Minister Narendra Modi’s foreign policy, formally launched in 2014. It prioritises strengthening relationships with India’s immediate neighbours to foster regional stability, connectivity, and economic integration.

The policy is guided by the ‘5S’ framework:

Samman (Respect): Treating neighbours as equals.

Samvad (Dialogue): Continuous diplomatic engagement.

Shanti (Peace): Ensuring regional security.

Samriddhi (Prosperity): Mutually beneficial economic growth.

Sanskriti (Culture): Leveraging shared historical and cultural ties.

Key Focus Areas

One of the key focus areas is promoting physical, digital, and energy links. Examples include the BBIN (Bangladesh, Bhutan, India, Nepal) Motor Vehicle Agreement and the India–Myanmar–Thailand Trilateral Highway. Another is enhancing trade through Lines of Credit (LoC), which reached approximately $14.7 billion by 2020 for regional projects.

It also looks to position India as a “first responder" in crises, such as the 2015 Nepal earthquake and the Vaccine Maitri initiative during the COVID-19 pandemic. The policy aims to strengthen ties with island nations like Maldives and Sri Lanka through the SAGAR (Security and Growth for All in the Region) vision.

In July 2024, India gained rail transit and seaport rights at Mongla in Bangladesh, significantly reducing transport costs for Northeast India. A Tripartite Power Trade agreement allowed Nepal to export 40 MW of electricity to Bangladesh via Indian territory.

Bangladesh: The Friendship Pipeline

Energy cooperation has become a hallmark of the India-Bangladesh relationship, focused on diversifying fuel sources beyond natural gas, according to the Press Information Bureau (PIB).

The India-Bangladesh Friendship Pipeline (IBFP), inaugurated in 2023, transports High-Speed Diesel (HSD) from West Bengal to northern Bangladesh. The pipeline, from Numaligarh Refinery Limited (NRL) in Assam to the Parbatipur depot in Bangladesh, provides a cost-effective diesel supply crucial for the Boro irrigation season, supporting national food security.

Replacing a 512-kilometer rail route with a 131.5 km pipeline has lowered transportation costs and reduced carbon emissions.

Bangladesh imports approximately 180,000 tonnes of diesel annually from Numaligarh Refinery.

Sri Lanka: Strategic Reserves and Crisis Support

India’s energy role in Sri Lanka is both commercial and strategic, particularly highlighted during economic crises. India has historically stepped in with credit lines and urgent fuel shipments to prevent total economic paralysis in Sri Lanka during fuel shortages.

India and Sri Lanka are jointly developing the Trincomalee oil tank farm, which acts as a strategic reserve to enhance Sri Lanka’s energy security.

The Lanka IOC (a subsidiary of Indian Oil) is a major player in Sri Lanka’s retail fuel market, ensuring consistent availability across the island.

During its severe economic crisis in 2022, India provided over US$3 billion in emergency aid, including critical fuel consignments. A $500 million credit line, later expanded by another $200 million, was signed with the Indian Oil Corporation to ensure consistent supply of petroleum products.

India in December announced a USD 450 million reconstruction and assistance package for Sri Lanka to help the island nation recover from the devastation caused by Cyclone Ditwah, with External Affairs Minister S Jaishankar saying that India “stands firmly with Sri Lanka more than ever before."

Nepal: Total Dependency and Seamless Connectivity

Nepal relies almost entirely on India for its petroleum needs, managed through a decades-long partnership between the Indian Oil Corporation (IOC) and the Nepal Oil Corporation (NOC).

India meets 100% of Nepal’s oil needs, including petrol, diesel, and aviation turbine fuel. The Motihari-Amlekhgunj pipeline, South Asia’s first transnational petroleum pipeline, significantly reduced the cost of fuel by bypassing long, expensive truck routes.

New projects are underway to extend pipelines to Chitwan and build a new line from Siliguri to

Jhapa to ensure even more reliable supply, especially during natural disasters. Fuel makes up roughly 28% of India’s exports to Nepal, powering a transport sector that is almost exclusively road-based.

Bhutan and Beyond

Like Nepal, Bhutan is entirely dependent on India for its fuel needs, which are met through seamless supply chains across the border. These petroleum links are part of a broader ‘Neighborhood First’ policy that includes cross-border electricity trade, creating an integrated South Asian energy grid.

With agency inputs

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