India Diversifies LPG Imports Amid Middle East Crisis and Price Volatility

The ongoing geopolitical instability in the Middle East has forced India to overhaul its Liquefied Petroleum Gas (LPG) procurement strategy to mitigate supply chain risks. As global prices surge, the country is pivoting away from its heavy reliance on Gulf nations toward a more diversified global import basket.

Strategic Shift to Reduce Gulf Dependency

Prior to the recent conflict, India faced significant vulnerability with approximately 90% of its LPG imports sourced from the Middle East. To counter potential disruptions, India has aggressively diversified its sourcing. A standout performer in this shift is the United States, which saw its share of India’s LPG imports jump from just 8% in February to nearly one-third by April 2026. This surge was bolstered by a massive 2.2 million tonne-per-year supply agreement signed with the U.S. in late 2025, covering roughly 10% of India's annual requirements.

Other significant contributors to the revamped import basket include Iran, which accounted for about 6% of imports in April, alongside additional supplies from Argentina, Chile, France, and the Netherlands. While this diversification ensures supply continuity, it comes with the trade-off of longer shipping routes and elevated freight costs.

Impact on Consumption and Market Demand

The combination of supply tightness and price volatility has led to a visible contraction in LPG demand. Domestic consumption fell to 2.47 million tonnes in April, down from 3.2 million tonnes in February. This follows a period of record growth where consumption had reached 33.2 million tonnes in fiscal 2026.

The decline has been most pronounced in the commercial and industrial sectors. While household demand remained relatively stable, market-linked commercial users reacted swiftly to rising costs, leading to a 13% year-on-year drop in demand during March and April, followed by a 20% decline in May.

The Financial Burden on Oil Marketing Companies (OMCs)

The global LPG market witnessed extreme volatility, with the Saudi Aramco Contract Price—the benchmark for Indian imports—skyrocketing by 46% between February and June. To protect domestic consumers from inflation, state-run Oil Marketing Companies (OMCs) absorbed a significant portion of these costs.

While the price of a 14.2-kg household cylinder in Delhi rose by only about 10%, the impact on retailers was severe. In contrast, 19-kg commercial cylinders saw price hikes exceeding 79%. This disparity led to massive under-recoveries; in May alone, under-recoveries on domestic cylinders in Delhi reached Rs 651 per unit. Between March and May, the cumulative losses borne by fuel retailers are estimated to be nearly Rs 22,000 crore.

Key Takeaways

  • Diversification is Key: India has successfully reduced its Middle East dependency by increasing imports from the U.S., Iran, and South American nations.
  • Economic Strain on OMCs: To cushion consumer impact, fuel retailers absorbed massive price shocks, leading to estimated losses of Rs 22,000 crore between March and May.
  • Demand Shifts: High prices and supply uncertainty caused a significant drop in LPG consumption, particularly among the more price-sensitive commercial and industrial sectors.