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.

Mientras que el precio de un cilindro comercial de 19 kg aumentó más del 79 %, el cilindro doméstico de 14,2 kg en Delhi experimentó un incremento relativamente modesto de aproximadamente el 10 %. Esta discrepancia ha provocado importantes pérdidas por subcompensación para los minoristas de combustible. Solo en mayo, las pérdidas por subcompensación de los cilindros domésticos en Delhi alcanzaron los 651 rupias por unidad, lo que contribuyó a una pérdida acumulada estimada de casi 22.000 crore de rupias para las OMCs entre marzo y mayo.

Conclusiones clave

  • Diversificación estratégica: India ha logrado reducir su dependencia de Oriente Medio aumentando las importaciones de EE. UU. a casi el 33 % y retomando relaciones con Irán.
  • Caída de la demanda: Los altos precios y el temor al desabastecimiento provocaron una caída significativa en el consumo, especialmente entre los usuarios industriales y comerciales sensibles a los precios.
  • Presión financiera sobre las OMCs: Para proteger a los hogares de la inflación, los minoristas estatales absorbieron costes masivos, lo que resultó en pérdidas acumuladas de casi 22.000 crore de rupias.