Rising concerns over India’s Liquefied Petroleum Gas (LPG) supply have resurfaced as geopolitical tensions intensify in West Asia and crude oil prices move higher. Although the country has not yet faced an acute shortage, oil marketing companies have begun prioritising household LPG supply, while restricting or carefully allocating cylinders to commercial users. The immediate cause of the renewed anxiety is the near-closure of the Strait of Hormuz—one of the world’s most critical maritime chokepoints through which nearly 29% of global LPG shipments normally pass. Since early March, tanker movement through this corridor has dropped sharply after Iranian forces warned vessels against transit, causing freight rates to surge and severely slowing India’s LPG inflows from Qatar and Saudi Arabia. The disruption has resulted in an estimated 30% weekly decline in arrivals, and the problem is amplified by India’s limited storage capacity of barely 1.2 million tonnes, which covers only about 15 days of national demand, leaving the country heavily exposed to external shocks.

Where India’s LPG Comes From:

India imports most of its LPG and natural gas from the Middle East, particularly Saudi Arabia, Qatar, and the UAE. It is estimated that nearly 60–70% of India’s LPG imports transit through the Strait of Hormuz, making any prolonged disruption along this narrow passage highly consequential. Despite increased diversification—including periodic shipments from the United States—the Gulf remains India’s dominant supplier because of shorter transit times, lower costs and established long-term trade patterns.

Government’s Emergency Actions to Boost Domestic Supply:

In response to the emerging supply concerns, the Indian government has invoked emergency powers under the Essential Commodities Act, directing Indian refiners to maximise LPG production and ensure that all the gas is supplied solely to domestic LPG consumers and not used to produce petrochemicals. The government has also instructed that all LPG produced under this directive must be supplied solely to state-run oil marketing companies—IOCL, BPCL and HPCL—to ensure uninterrupted household distribution. At the same time, India has increased sourcing beyond the Gulf, with additional LPG cargoes arriving from the United States, although these shipments are not large enough to fully compensate for the loss of West Asian volumes.

How LPG Is Produced:

LPG is produced through two major pathways: natural gas processing and crude oil refining. In the first method, heavier hydrocarbons such as propane and butane are separated from raw natural gas and liquefied under pressure. In crude oil refining, propane and butane fractions emerge as part of the distillation process and are compressed into LPG. Because a significant portion of global LPG production is refinery-linked, LPG prices often move in tandem with crude oil market trends.

Potential Impact on Prices If Tensions Continue:

If disruptions at the Strait of Hormuz persist, LPG prices may face upward pressure due to surging freight costs, higher insurance premiums and tighter global availability. Although the government often cushions households through subsidies or price interventions, sustained constraints could ultimately raise market prices or increase fiscal burdens. Interestingly, crude oil prices have risen sharply due to geopolitical risks, while natural gas prices have remained relatively steady thanks to healthy inventories and diversified global supply chains—indicating that the current LPG challenge is primarily logistical rather than a fundamental supply shortage.

Steps India Must Take to Strengthen Future Resilience:

Looking ahead, India must strengthen its long-term resilience through a combination of infrastructure expansion, market diversification and consumption management. This includes increasing LPG storage capacity, developing strategic reserves, accelerating the construction of new pipelines and import terminals, expanding supplier diversification beyond the Gulf, encouraging adoption of piped natural gas (PNG) in urban areas, and regulating commercial LPG use during crisis periods. Ultimately, reducing import dependence, widening the supplier network and building adequate storage will play a decisive role in protecting households from prolonged disruptions.

(The author is Head of Commodity Research, Geojit Investments)