India Diversifies LPG Imports Amid Middle East Volatility and Rising Costs

The escalating conflict in the Middle East has forced India to urgently restructure its Liquefied Petroleum Gas (LPG) procurement strategy to mitigate supply chain risks. As global energy markets face unprecedented uncertainty, the country is pivoting away from heavy Middle Eastern reliance toward a more geographically diverse import basket.

Shifting Away from Middle East Dependency

Before the recent geopolitical disruptions, India was highly vulnerable to regional instability, with approximately 90% of its LPG imports sourced from the Middle East. To counter this risk, India has aggressively diversified its sourcing. A recent Crisil report highlights a dramatic shift: imports from the United States surged from just 8% in February to nearly one-third of total imports by April 2026.

This pivot was bolstered by a significant 2.2 million tonne-per-year supply agreement signed with the U.S. in late 2025, which covers roughly 10% of India’s annual LPG requirement. Furthermore, Iran has re-emerged as a key supplier, contributing about 6% of imports in April, while additional volumes were secured from Argentina, Chile, France, and the Netherlands. However, this diversification comes with a cost, as longer supply routes have led to increased freight expenses.

Impact on Consumption and Market Demand

The combination of supply tightening and price volatility has had a cooling effect on domestic demand. While India’s LPG consumption hit a record 33.2 million tonnes in fiscal 2026—a 6% growth—the recent months tell a different story. Demand plummeted to 2.47 million tonnes in April from 3.2 million tonnes in February.

The decline has been particularly sharp in the commercial and industrial sectors, where users are more sensitive to market-linked price fluctuations. Year-on-year demand fell by 13% in both March and April, followed by a significant 20% drop in May.

Rising Costs and the Financial Burden on OMCs

The Middle East crisis sent shockwaves through global pricing benchmarks. The Saudi Aramco Contract Price, the primary benchmark for Indian imports, skyrocketed by 46% between February and June. Despite this, state-run Oil Marketing Companies (OMCs) have largely cushioned the blow for domestic consumers.

While the price of a 19-kg commercial cylinder rose by over 79%, the 14.2-kg household cylinder in Delhi saw a relatively modest increase of about 10%. This discrepancy has led to massive under-recoveries for fuel retailers. In May alone, under-recoveries for domestic cylinders in Delhi reached Rs 651 per unit, contributing to an estimated cumulative loss of nearly Rs 22,000 crore for OMCs between March and May.

Key Takeaways

  • Strategic Diversification: India has successfully reduced its Middle East dependency by increasing U.S. imports to nearly 33% and re-engaging with Iran.
  • Demand Slump: High prices and supply fears caused a significant drop in consumption, particularly among price-sensitive industrial and commercial users.
  • Financial Strain on OMCs: To protect households from inflation, state-run retailers absorbed massive costs, resulting in nearly Rs 22,000 crore in cumulative losses.