When rumours move markets faster than tankers and cylinders

The recent escalation of conflict in the Middle East – a region that supplies a significant portion of India’s crude oil – has reintroduced the menace of energy insecurity. For a country that imports over 85% of its crude oil, the Strait of Hormuz is not just a geopolitical chokepoint; it is a lifeline. Against this backdrop of genuine global uncertainty, the Petroleum Ministry, Government of India, has been working overtime through press releases and public statements. It has assured citizens that India’s energy supply remains “secure and stable,” that there are “no shortages” of petrol, diesel, or LPG, and that all retail outlets are functioning normally. Officials have decried “misinformation and panic-driven reports” as unfounded, urging the public to rely solely on official sources. Yet, despite these assurances, the growing lines at petrol pumps in several parts of the country suggest the message isn’t landing. 

In times of global crisis, our historical collective “muscle memory” of scarcity and uncertainty often overrides the most polished government assurance. While the officials are technically correct—the supply chains are intact, terminals are full, and no price hike has been announced—the market and the public are not processing the “information;” they are processing the “signal.” What we recently witnessed in the form of panic buying is best understood not as irrationality, but as a predictable outcome of the economics of information. When individuals face uncertainty – about war, shipping routes, supply chain disruptions, or future prices – they do not have perfect information. Instead, they look to proxies: what others are doing, what WhatsApp messages say, how crowded the petrol pump or LPG godown looks.

This is where the idea of “information cascades” becomes crucial, a concept developed by Nobel laureate Abhijit Banerjee and others in the early 1990s. In an informational cascade, individuals ignore their own private information (or lack of evidence) and follow the actions of those before them, leading to inefficient mass conformity (herds). If a few people begin topping up fuel tanks “just in case,” others interpret that behaviour as evidence of impending shortage – even if the initial actors were merely being cautious. Very quickly, the behaviour feeds on itself.

This herd behaviour, famously explored in financial markets by Robert Shiller, is not stupidity; it is a rational shortcut under uncertainty. If everyone else seems to believe something, the cost of being wrong alone feels higher than the cost of being wrong together. So individuals align with the crowd. At a petrol pump, this translates into longer queues not because fuel is scarce, but because the belief in scarcity has become widespread. Each household thinks: “Even if the rumour is false, I lose little by filling up now, but I risk a lot if it turns out to be true.” This asymmetry creates what economists call a dominant precautionary strategy. The individually rational decision – to fill the tank – becomes collectively destructive when everyone does it simultaneously. Supply chains designed for steady consumption suddenly face demand spikes they were never meant to absorb.

This is how rumours acquire real economic force. They are not just “false information”; they are demand shocks in disguise. Thus the government’s reassurance that there is no shortage of petrol, diesel, or LPG must be read not merely as a statement of fact, but as an attempt to halt a cascade. In the economics of information, credibility and timing are everything. If official communication arrives early and is trusted, it can prevent the cascade from taking off. If it arrives late – or is viewed with skepticism – it may fail to reverse the herd once it has formed.

In low-trust environments, denial can perversely act as confirmation. When people believe that “the government would only deny if something were wrong,” official reassurance loses its stabilizing function. The result is a dangerous equilibrium where both rumour and denial amplify uncertainty.

India’s structural position is not weak: diversified sourcing, significant refining capacity, and buffer stocks provide resilience. But resilience at the macro level can be undermined by fragility at the micro level – by how millions of individuals interpret and act on incomplete information. Energy security today is as much about information architecture as it is about physical infrastructure. The Petroleum Ministry must recognize that in an era of high anxiety, repeating “don’t panic” is often interpreted as a reason to panic. To break this cycle, the government must shift from reactive denials to proactive, granular communication. It must explain the inventories, the diversification of import sources, and the contingency plans in plain language, and the media must resist amplifying unverified claims. Digital platforms must recognize that viral scarcity narratives can trigger real-world disruptions. And citizens must learn a difficult discipline: to distinguish between signals and noise.

Because in the end, the queue at the petrol pump is not just a line of vehicles. It is a line of beliefs. And when beliefs herd, even a full tank can start to look empty.

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