The shutdown of the Strait of Hormuz following the war in Iran has delivered a harsh lesson to global energy markets: the waterway carries far more than crude oil. Beyond crude and natural gas, the Middle East anchors key downstream fuel flows that sustain entire national energy systems. Nowhere is that dependence clearer than in India, where the liquefied petroleum gas (LPG) market relies overwhelmingly on supplies from the Gulf.

Middle Eastern suppliers account for roughly 90% of India’s LPG imports, a figure that becomes even more striking when viewed alongside India’s structural import dependence. Domestic production covers only 40% of national consumption, forcing the country to import the remaining 60% of its LPG needs. Demand itself has been climbing rapidly: India’s LPG consumption reached a historic high this February, at a rate of 100 kT/d.

LPG occupies a uniquely important place in India’s domestic energy mix. Around 60% of Indian households rely on LPG as their primary cooking fuel, a transformation largely driven by the government’s Pradhan Mantri Ujjwala Yojana (Free Gas Cylinder Scheme), launched in 2016 to provide subsidized LPG connections to low-income households and replace traditional fuels such as firewood, crop residue, and animal dung. The program dramatically expanded LPG access across the country, bringing the total number of connections to more than 310 million. As a result, consumption has continued to rise steadily. In February 2026, demand reached 2.8 million tonnes, marking a 10% year-on-year increase and the highest ever rate of daily LPG consumption.

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The closure of Hormuz immediately disrupted this delicate balance. The strait normally serves as the gateway for the vast majority of India’s LPG imports, and its blockage effectively halted about 90% of incoming cargoes. Since the start of the conflict, Iran has allowed only two LPG vessels to pass through the strait – Shivalik and Nanda Devi, both Indian-flagged tankers carrying a combined 92,000 tonnes of LPG, which reached Indian ports on March 16 and March 17, respectively. New Delhi portrayed the passage as a diplomatic success, while Tehran framed the decision as part of its broader policy of allowing vessels to transit the waterway if they are bound for countries considered friendly to Iran.

New Delhi is now negotiating urgently with Tehran to secure additional transits. According to Indian officials, discussions are underway for the passage of six LPG carriers and two crude oil tankers currently stranded in Gulf waters. The LPG vessels together carry around 270,000 tonnes of cargo, equivalent to roughly three days of Indian consumption.

Meanwhile, signs of panic buying are already emerging. Daily LPG booking requests surged to 7.6 million by mid-March, compared with 5.5 million at the beginning of the month. The strain is spreading across the economy. Restaurants are shutting down or cutting menu offerings, hotels are reducing operations, and several food-processing factories have suspended production due to fuel shortages. Authorities have introduced measures prioritizing LPG supplies for households first, followed by hospitals and educational institutions.

The government has also moved to maximize domestic output. LPG production in India has remained broadly stable in recent years, reaching 1.12 million tonnes in January 2026. However, Ministry of Petroleum and Natural Gas officials claim that following the government’s emergency directives, domestic LPG production rose by roughly 30% by mid-March compared with the beginning of the month. At the same time, authorities have urged households with access to piped natural gas networks to switch away from LPG cylinders. Government estimates suggest that around 6 million households could potentially make this transition.

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New Delhi is also exploring unconventional domestic substitutes. The government has asked Coal India (the country’s largest coal producer) to supply coal to small businesses such as restaurants and hotels. The proposal, however, appears difficult to implement in practice. Small LPG cylinders require entirely different equipment than coal-fired systems, and converting kitchens (particularly in hospitals, hotels, and urban restaurants) would require infrastructure upgrades that are unlikely to be completed quickly, while also raising safety and environmental concerns.

On the import side, India is scrambling to secure replacement cargoes from alternative suppliers including the United States, Norway, Canada, and Russia. Yet each potential source comes with significant constraints. Norway’s LPG output is relatively small and largely committed to European buyers, particularly after the European Union imposed a full ban on Russian LPG imports in December 2024.

Russia, which has recently stepped in with a helping hand to support India’s energy supplies, offers limited relief in this case. Despite the strong energy ties that have deepened in recent years, Moscow’s LPG export structure is poorly suited to replace the sudden loss of Middle Eastern cargoes. Historically, Russian LPG exports were delivered to Europe by rail. Following the European ban, those rail cargoes were largely redirected toward China. Russia simply lacks the necessary seaborne export infrastructure to move large LPG volumes to India or any other overseas markets.

The US appears to be the most viable alternative supplier. The country currently accounts for about 47% of global LPG exports, making it the single largest player in the market. Yet even here, two major challenges remain.

The first is price. Japan, currently the main Asian buyer of US LPG, is paying roughly $1,060/t for butane and $950/t for propane. Before the Iranian conflict erupted, the Middle Eastern LPG delivered price to India was roughly $600/t for a typical 50/50 propane-butane mix. Freight durations from the US to India are broadly comparable to those to Japan – minus Panama Canal transit costs in case of Indian cargoes – meaning delivered US LPG prices for India would likely land in the $850–$900/t range. That means a roughly 50% price increase compared with pre-war Middle Eastern supplies. Because LPG retail prices in India are heavily state-subsidized, such an increase would place significant strain on the government budget.

The second obstacle lies in product composition. US LPG exports are heavily tilted towards propane, 77% of all liquefied petroleum gas outflows, while the Indian consumer market is optimized for a 40/60 propane-butane mixture, effectively requiring more butane. Adjusting supply chains to accommodate a propane-heavy mix would require logistical and distribution adjustments that cannot be implemented overnight. Moreover, the composition of the blend is also shaped by climatic conditions in India and in the Asian region overall. Propane has a significantly higher vapour pressure than butane, particularly in hot environments, increasing the risks associated with storage and transportation, including leakage and broader safety management challenges.

A possible alternative to Middle Eastern supplies is Iran. Iranian LPG cargoes are well-suited to Indian specifications, and Tehran has so far been supplying large volumes to China and Pakistan. Importantly, Iranian LPG cargoes have continued moving through the Strait of Hormuz, meaning shipments could be delivered to Indian ports relatively quickly if trade were permitted. However, India has refrained from purchasing Iranian energy cargoes in recent years due to U.S. sanctions. With growing speculation that Washington could ease restrictions on Iranian oil, the current crisis raises the possibility that sanctions on fuels and refined products could also be relaxed, at least temporarily. Should the disruption persist, New Delhi may ultimately find itself facing a difficult choice between strict compliance with sanctions and the urgent need to secure fuel supplies.

As the crisis drags on, the consequences are already spilling into India’s industrial sector. Steel producer Jindal Stainless has reported reduced operating rates at several plants due to shortages of industrial propane. The disruption is also hitting publicly traded consumer companies. Shares of quick-service restaurant operators Sapphire Foods and Devyani International, both headquartered in Mumbai, have fallen by 21% and 19%, respectively, since the US-Iran war started, reflecting operational disruptions caused by commercial LPG shortages.

For India, the Hormuz crisis has exposed the fragility of a fuel system that underpins everyday life for hundreds of millions of households. Replacing Middle Eastern LPG volumes at short notice is proving extraordinarily difficult, constrained by infrastructure limits, incompatible fuel mixes, and sharply higher prices elsewhere in the market. Unless maritime traffic through the Strait of Hormuz normalizes soon, New Delhi may be forced to navigate a prolonged period of fuel rationing, industrial disruption, and mounting fiscal pressure – an uncomfortable reminder that one of the world’s fastest-growing energy markets remains acutely dependent on a single narrow waterway.

By Natalia Katona for Oilprice.com

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