Middle East Crisis Forces India to Diversify LPG Imports and Absorb Costs

The escalating conflict in the Middle East has forced India to aggressively overhaul its Liquefied Petroleum Gas (LPG) procurement strategy to mitigate supply chain risks. As geopolitical tensions rise, the nation is moving away from its heavy reliance on Gulf suppliers to protect domestic energy security.

Aggressive Diversification of the LPG Import Basket

Prior to the recent regional instability, India faced a significant vulnerability with nearly 90% of its LPG imports sourced from the Middle East. To counter this concentration risk, India has executed a rapid pivot toward global suppliers. According to a Crisil report, the share of LPG imports from the United States surged from a mere 8% in February to nearly one-third of total imports by April 2026.

This shift was bolstered by a strategic 2.2 million tonne-per-year supply agreement signed with the U.S. in late 2025, which covers approximately 10% of India’s annual requirement. Furthermore, Iran has re-entered India’s import basket, contributing about 6% of imports in April. Other notable contributors to this diversified portfolio include Argentina, Chile, France, and the Netherlands. While this ensures supply continuity, it has introduced challenges such as longer shipping routes and elevated freight costs.

The combination of tighter global supplies and rising costs has had a visible impact on LPG consumption within India. After reaching a record 33.2 million tonnes in fiscal 2026 (a 6% growth), demand saw a sharp contraction due to the crisis. Consumption fell from 3.2 million tonnes in February to 2.47 million tonnes in April.

The decline was particularly pronounced in the commercial and industrial sectors, where market-linked users reacted swiftly to price volatility. Year-on-year demand plummeted by 13% in both March and April, with a further 20% decline recorded in May.

Price Volatility and the Financial Burden on OMCs

The Middle East conflict triggered a massive spike in global benchmarks. The Saudi Aramco Contract Price, which dictates Indian import costs, surged by 46% between February and June. To prevent social unrest and protect low-income households, Oil Marketing Companies (OMCs) have absorbed a significant portion of these costs.

While the price of a 19-kg commercial cylinder rose by over 79%, the 14.2-kg household cylinder in Delhi saw a much more modest increase of approximately 10%. This disparity has led to massive under-recoveries for state-run retailers. In May alone, under-recoveries for domestic cylinders in Delhi reached ₹651 per unit, contributing to estimated cumulative losses of nearly ₹22,000 crore for fuel retailers between March and May.

Key Takeaways

  • Strategic Shift: India is reducing its 90% reliance on Middle Eastern LPG by increasing imports from the US, Iran, and South American nations.
  • Demand Slump: High prices and supply uncertainty led to a significant drop in LPG consumption, particularly among commercial and industrial users.
  • Financial Strain: OMCs are bearing the brunt of global price hikes, with cumulative losses estimated at ₹22,000 crore as they cushion the impact on household consumers.