India's LNG Supply at Risk From Iran Crisis More Than Oil

Introduction: A Gas Crisis Over an Oil Shock

A new report suggests India's energy security faces a more significant threat from potential liquefied natural gas (LNG) shortages than from crude oil disruptions due to the escalating conflict in West Asia. According to an analysis by Shriram Asset Management, the strategic vulnerability of the Strait of Hormuz puts India's heavy reliance on imported gas in a precarious position, with early signs of supply stress already emerging across key industrial sectors.

The Strait of Hormuz: A Critical Chokepoint

The crisis, which intensified in late February 2026 following coordinated US and Israeli strikes on Iranian military and nuclear facilities, has led to retaliatory actions from Iran. The situation worsened significantly after Iran reportedly began laying naval mines in the Strait of Hormuz, a narrow waterway through which about 150 vessels, including a large volume of the world's oil and LNG tankers, pass daily. Even the threat of mines can halt maritime traffic, as insurance companies may refuse to cover vessels transiting a conflict zone. This chokepoint is critical for India, as it serves as the transit route for 55-65% of its LNG imports and nearly 90% of its LPG imports.

Why LNG is India's Bigger Concern

While global oil markets have reacted sharply to the geopolitical tensions, India has some measures to cushion the blow from a crude oil supply shock. The country can increase imports from other suppliers like Russia or utilize alternative shipping routes from Saudi Arabia. Furthermore, India maintains strategic petroleum reserves to manage short-term disruptions. However, the scenario for LNG is far more challenging. India has limited alternatives for its gas imports. Qatar alone supplies approximately 40% of India's gas, and these shipments must pass through the Strait of Hormuz. Sourcing LNG from more distant markets like the US, Africa, or Australia is not a quick fix, as it involves longer transit times, higher costs, and depends on the limited availability in the global spot market.

Domestic Industries Feel the Pinch

The impact of the gas supply disruption is no longer theoretical. Early signs of stress are visible across the Indian economy. To ensure availability for essential services, gas supplies are being diverted to priority sectors such as households, hospitals, and fertiliser production. This has led to shortages for other industries. Fertiliser and chemical manufacturers, which rely on imported gas as feedstock, are facing potential output cuts. City gas distribution companies have reportedly started curtailing supplies to industrial and commercial customers. The impact is particularly acute in industrial hubs like Gujarat, where ceramics and building material units have reported sharp reductions in gas availability, with some factories holding fuel stocks for only a few days.

The Squeeze on LPG and Government Response

The crisis has also tightened the supply of liquefied petroleum gas (LPG), a primary cooking fuel for millions of Indian households. With nearly 90% of LPG imports transiting the Strait of Hormuz, supply constraints have led to booking delays in several regions. In response, the Indian government invoked the Essential Commodities Act on March 6, 2026, directing refineries to maximize LPG production. The LPG refill booking cycle for households was extended from 21 to 25 days. On March 7, the government increased the price of non-subsidised domestic cylinders by ₹60 and commercial cylinders by ₹114.5.

Key Data on India's Energy Exposure

Broader Macroeconomic Risks

The Finance Ministry's Monthly Economic Review for February 2026 acknowledged the potential risks to the economy. A prolonged conflict could undermine India's energy security, worsen inflation, and strain the external sector. Estimates suggest that a sustained $10 per barrel increase in crude oil prices could reduce corporate earnings growth by about 4%. More critically, every $10 increase in Brent crude is estimated to widen India's current account deficit by over $10 billion, or 0.3-0.4% of GDP. While the government noted that India's strong macroeconomic fundamentals, including sufficient foreign exchange reserves and a low current account deficit, provide a buffer, it warned that a persistent crisis could have material consequences for the rupee and fiscal stability.

Conclusion: An Uncertain Path Ahead

While oil prices often dominate headlines during geopolitical conflicts in West Asia, the current crisis highlights a more immediate and less manageable risk for India in the form of natural gas. The nation's deep dependence on LNG and LPG imports via the Strait of Hormuz exposes its industrial and household sectors to significant supply shocks. While some sectors like upstream oil producers may benefit from higher prices, the broader manufacturing and consumption-linked economy faces considerable margin pressure. The situation remains highly uncertain, with India's near-term energy security hinging on the stability of a single, vulnerable maritime route.