Renewed conflict in the Middle East has once again underscored the enduring link between geopolitical instability and global energy markets. As tensions escalate in a region central to global hydrocarbon supply and maritime energy trade, concerns have resurfaced over disruptions to key shipping routes, energy flows, and commodity prices.
While the immediate effects of such crises are often reflected in price volatility, their implications for import-dependent economies such as India extend far beyond short-term market fluctuations. Disruptions in global energy trade can quickly transmit into domestic economic pressures through higher import costs, supply constraints, and inflationary spillovers across multiple sectors.
Background: Exposure and Policy Response
As the world’s third-largest importer of crude oil, the fourth-largest importer of liquefied natural gas (LNG), and the second-largest consumer of liquefied petroleum gas (LPG), India remains particularly exposed to disruptions in global energy supply. This scale of demand is matched by a high degree of regional concentration: Approximately 45 percent of India’s crude oil, 60 percent of its natural gas, and over 90 percent of LPG imports originate from the Middle East.
This structural dependence amplifies India’s vulnerability to disruptions in critical maritime chokepoints such as the Strait of Hormuz, through which a significant share of global oil and LNG shipments transit. As of mid-March, over 1.6 million tonnes of crude oil, along with 320 thousand tonnes of LPG and about 200 thousand tonnes of LNG, are stranded aboard Indian-flagged vessels awaiting passage through the strait.
In response to tightening supplies, the government has invoked provisions under the Essential Commodities Act, 1955, enabling the regulation and redistribution of natural gas across sectors. The order, issued by the Ministry of Petroleum and Natural Gas (MoPNG), allows authorities to divert both domestically-produced gas and imported LNG toward priority sectors while curtailing supply to non-essential users.
Under this framework, gas allocation has been restructured to prioritize household consumption and mobility (PNG and CNG), LPG production, and fertilizer manufacturing, while supply to industrial and commercial users, including manufacturing units and city gas distribution-linked industries, is being curtailed to between 70 to 80 percent of recent consumption levels. Refineries, meanwhile, are receiving reduced allocations of around 65 percent, with the state-owned gas company GAIL overseeing the reallocation of supplies.
These initial measures emphasize the central role of gas in the current crisis, with supply constraints transmitting unevenly across sectors depending on end-use. LNG and LPG shortages, in particular, pose significant challenges for Indian policymakers.
“Approximately 45 percent of India’s crude oil, 60 percent of its natural gas, and over 90 percent of LPG imports originate from the Middle East.”
LNG: Fertilizer Production, Power, and Industrial Activity
Natural gas is essential for ammonia production, which underpins urea and other fertilizers. Roughly 40 percent of India’s fertilizer imports originate from the Middle East, linking energy disruptions directly to agricultural supply chains. India imports approximately 60 percent of LNG used in urea manufacturing from Qatar, and 30 out of 32 urea plants rely on natural gas as feedstock.
As LNG availability tightens, several fertilizer producers have advanced maintenance shutdowns to manage reduced gas supply. While stockpiles remain adequate in the short term, prolonged disruptions could increase input costs and contribute to food price inflation. At the same time, India has reportedly begun exploring additional urea imports from China.
This pressure is compounded by fiscal constraints. India’s fertilizer subsidy is already among the largest components of public expenditure, with urea subsidy outlays exceeding USD $10.9 billion annually over the past six years and budgeted at approximately USD $12.7 billion for the current fiscal year. Additional subsidies of around INR ₹192 billion (USD $2 billion) have recently been proposed to offset rising input costs.
Beyond fertilizers, LNG disruptions are also affecting industrial and urban energy systems. The city gas distribution (CGD) sector, supplying piped natural gas (PNG) for households and compressed natural gas (CNG) for transport, faces rising input costs as LNG becomes more expensive and domestic gas availability tightens. In this context, the immediate impact is likely to be price increases for urban consumers, while industrial users connected to CGD networks may face deeper supply curtailments.
The current supply disruptions also coincide with a period of elevated electricity demand driven by heatwaves and rising cooling needs. Peak power demand is expected to exceed 270 gigawatts, surpassing previous records. In this context, gas-based power plants play an important balancing role, providing flexibility during peak demand periods. However, reduced LNG availability risks constraining this flexibility at a time when grid stability is most critical.
In response, the government has directed coal-based power plants to increase output to meet rising demand, reinforcing coal’s role as the backbone of India’s electricity system. While this ensures short-term supply security, it also implies a shift from gas to coal in the power mix, with implications for emissions and air quality.
LPG: Household Consumption and Small-Scale Industry
LPG, which serves as a primary cooking fuel for a vast share of the population, represents one of the most immediate points of vulnerability. Nearly 330 million households and over three million businesses rely on LPG cylinders, making India the world’s second-largest consumer of the fuel. This widespread dependence also explains its classification as a priority sector under current allocation measures.
The scale of reliance is further reinforced by welfare schemes such as the Pradhan Mantri Ujjwala Yojana (PMUY), which has expanded access to subsidized LPG connections to over 100 million low-income households. This limits the government’s ability to fully pass through rising global prices, creating a trade-off between fiscal burden and inflation management.
In response to tightening supply conditions, the government has directed refineries to maximize LPG output by diverting hydrocarbon streams, including butane and propane away from petrochemical production. This has reportedly led to a 40 percent increase in domestic production. However, structural dependence on imports remains significant, with India requiring an estimated 29 to 34 LPG cargoes per month to meet demand.
Recent reports indicate that two previously-stranded LPG tankers carrying around 90,000 tonnes of LPG reached the Indian coast, offering temporary relief. However, these inflows are unlikely to offset the broader supply disruption, particularly given uncertainties around key export hubs such as Qatar’s Ras Laffan facility, one of the largest LPG export terminals supplying India.
Efforts to diversify supply are underway, including agreements by public-sector oil companies to import 2.2 million tonnes of LPG annually from the United States, which would account for roughly 10 percent of India’s demand, with initial shipments already received. However, should the crisis persist, longer transit routes, higher freight costs, and ongoing disruptions to Middle Eastern production limit the effectiveness of such diversification strategies.
“For India, reducing vulnerability will require a combination of diversified sourcing, expanded reserves, flexible infrastructure, and accelerated energy transition.”
Diversification, Resilience, and the Energy Transition
The effects of these disruptions are not confined to individual sectors. Energy shortages are beginning to ripple across a broader set of industrial activities, including petrochemicals, manufacturing, and small-scale industries that rely on gas-based inputs. Early indications, such as production disruptions in segments of the steel sector, suggest that prolonged supply constraints could translate into a wider industrial slowdown and cost escalation. Taken together, these developments illustrate how disruptions in global energy trade can transmit through multiple channels, from household fuel consumption and fertilizer production to industrial output and electricity systems, highlighting the systemic nature of energy security risks for import-dependent economies such as India.
Worryingly, with reports of significant damage to Qatar’s Ras Laffan complex, one of the world’s largest LNG and LPG export hubs and a critical supplier to India, the energy crisis seems poised to deepen. Prior to the crisis, global LNG markets were expected to move toward oversupply, with new capacity putting downward pressure on spot prices. Disruptions at Ras Laffan have reversed this outlook in the near term, tightening markets, increasing reliance on higher-priced spot cargoes, and introducing uncertainty around recovery timelines. Moreover, the heightened risk that critical energy infrastructure across the region may become a target suggests that recovery could extend well beyond the immediate crisis, potentially taking months or longer for production to stabilize. India is therefore likely to face a combination of supply tightness and inflationary pressures, particularly across gas-linked sectors necessitating continued demand management.
The broader macroeconomic dimension is also becoming increasingly important. In response to global uncertainty, the government has proposed the creation of an INR ₹573 billion (USD $6.20 billion) economic stabilization fund to manage external shocks and supply chain disruptions, reflecting the growing fiscal implications of energy volatility. In the longer term, expanding LPG and LNG storage infrastructure, which has been under discussion, could provide an important buffer against disruptions. At the same time, accelerating the domestic energy transition will be central to reducing structural dependence on imported fossil fuels. India’s renewable energy capacity reached approximately 254 gigawatts by November 2025, with domestic solar manufacturing capacity exceeding 144 gigawatts annually. However, sustaining this transition will require continued investment not only in generation capacity, but also in grid infrastructure, storage, and system flexibility, particularly as higher shares of variable renewable energy are integrated into the system.
Alongside supply-side strategies, improving energy efficiency represents another important, though often overlooked, dimension of energy security. Reducing overall energy demand through efficiency measures across industry, buildings, and transport can help limit exposure to volatile global fuel markets while supporting both economic and environmental objectives. In this sense, efficiency improvements offer one of the most cost-effective tools for enhancing resilience. The current crisis highlights that energy security is no longer defined solely by access to resources, but rather by the resilience of systems that connect them. For India, reducing vulnerability will require a combination of diversified sourcing, expanded reserves, flexible infrastructure, and accelerated energy transition. In an increasingly uncertain global energy landscape, resilience will depend not only on what India imports, but on how effectively it can absorb and adapt to disruption.
Views expressed are the author’s own and do not necessarily reflect the positions of South Asian Voices, the Stimson Center, or our supporters.
Also Read: Pakistan’s Solar Boom and Stagnation: Energy Governance and Security at a Crossroads
***
Image 1: Lucky 2916 via Wikimedia Commons
