What happens to India’s fuel supply if the Iran conflict worsens? | AI With Sanket

India’s heavy dependence on imported energy means any disruption in West Asia can have immediate consequences. With nearly 88 per cent of its oil and about half of its gas coming from overseas, supply shocks around the Strait of Hormuz could quickly ripple through India’s energy ecosystem.

In this episode of AI With Sanket, The Federal spoke to Debashish Mishra, Chief Growth Officer at Deloitte South Asia, on how the ongoing crisis could affect India’s fuel security, LPG availability, city gas distribution, and petrol and diesel prices.

How do you assess the current crisis in relation to India’s energy needs?

Obviously, this is one of those black swan events—a major crisis that has hit the energy world. Considering that India imports 88 per cent of its oil requirements, the crude oil environment becomes extremely critical.

Also read | Centre rejigs gas allocation priority amid Iran war; LPG, CNG, piped cooking gas on top

India also imports almost 50 per cent of its gas and quite a lot of LPG. We depend heavily on supplies from the Middle East that pass through the Hormuz chokepoint. Obviously, India is impacted immensely. There are no two ways about it.

However, different fuel categories are impacted differently. In the case of oil, India has strategic reserves. With refining capacity well beyond domestic requirements, the country’s refining, pipeline, and storage systems collectively ensure there is enough oil to meet demand for at least a couple of weeks.

However, when it comes to LPG and LNG imports—which go into city gas distribution—the cushion is much smaller.

Which fuel segments are likely to be hit first if the crisis continues?

We have already started seeing scarcity of LPG in the commercial segment. Hotels are now complaining about shortages.

Soon we may see problems in the city gas distribution segment as well, especially piped natural gas.

There are two separate issues here: availability and price impact. We will come to the price impact later. But in terms of availability, if the crisis continues, the first segments that will get impacted are city gas distribution and LPG.

As of now, India is doing fine with respect to petrol and diesel.

How long can India delay an LNG, CNG, PNG, or LPG crisis if the conflict continues?

About 50 per cent of India’s gas requirement comes as LNG, and most of it comes from Qatar. As you know, Qatar lies beyond the chokepoint and currently they are not able to send even a single cargo. That will be the first supply to get impacted.

India’s domestic gas production will probably be diverted to fertilizer plants and some domestic gas supplies in cities. That is why the commercial segment of LPG is already starting to feel the impact.

India also imports a lot of LPG from Saudi Arabia.

Can India compensate by increasing domestic LPG production?

Indian refineries produce around 14–15 million metric tonnes of LPG. The government of India has already used its authority to ask refineries to produce more LPG. So LPG production may be ramped up and that gap can possibly be backfilled.

But when it comes to gas, that is a much more difficult proposition. There will definitely be an impact on city gas distribution in the form of CNG and PNG supply.

What would be the broader impact if CNG and piped natural gas supplies are hit?

The moment it hits piped natural gas and compressed natural gas, the automobile sector is going to be affected. CNG forms the backbone of commercial mobility.

Also read | Commercial LPG shortage hits restaurants across India; menus cut, shutdown fears rise

More importantly, piped natural gas is widely used in major cities now. Many households depend on PNG instead of LPG cylinders.

So the moment gas supply gets disrupted, it becomes a major problem.

Is India too dependent on Qatar for LNG, and what alternatives exist?

Obviously LNG can come from Australia, the US, and other places as well. These are the other two large sources of LNG.

However, it is not easy to immediately get a cargo, bring it to a regasification terminal, and push it into the pipeline network.

So there will definitely be a crisis period in between.

A large portion of gas goes to fertilizer plants, so planners and policymakers will likely prioritise supply to minimise disruption. There will be scarcity, but if priorities are managed properly, the disruption can be contained.

If supplies from Qatar and Saudi Arabia remain disrupted, what immediate options does India have?

LPG is also a byproduct of refining. Indian refineries can tweak their processes slightly to produce more LPG, which is what the government has asked them to do. These adjustments may take about a week or so. But that is possible only if crude oil is available in the system.

The challenge is that crude supply itself is getting disrupted. India imports more than 5 million barrels of crude per day, and almost half of it comes through the Gulf route via the Hormuz chokepoint. So crude coming from other sources and India using its strategic reserves may be required.

But when refineries divert more crude to produce LPG, it means some capacity gets diverted away from petrol and diesel. Ultimately, the same refinery infrastructure produces multiple outputs. So it becomes a complex balancing act.

The reality is that the whole world is impacted. Many countries are even more vulnerable than India, so everyone is hoping the crisis ends sooner rather than later.

If crude prices keep rising, how long can the government shield petrol and diesel prices?

Indian refineries take crude oil, refine it into petrol and diesel, and not just for domestic consumption but also for exports.

Crude oil has already jumped to around $120 a barrel and there are no signs of it easing.

What the government did quite smartly earlier was that it did not change retail prices for a long time. Oil prices were hovering around $60–$62 per barrel for a long time. At the same time, the rupee depreciated significantly. Both factors matter because everything in the oil value chain is priced in US dollars.

Because the benefit of lower oil prices was not passed on to consumers earlier, oil marketing companies had some cushion. But this cannot continue indefinitely. The general thumb rule is that every $10 increase in crude oil prices requires roughly a ₹5 increase in petrol and diesel prices at the consumer end.

If crude prices have risen by $50 in recent days, it theoretically implies a ₹25 increase. But that will not happen immediately. If high prices sustain for a month or two, the government will eventually have to increase retail prices.

Could the government reduce fuel taxes to cushion the impact on consumers?

Yes, that is something we have seen in the past. Whenever there is a major spike in crude oil prices, the government reduces taxes on petrol and diesel to soften the impact on consumers.

Also read | Could global gas supply disruptions threaten India’s energy security? | Capital Beat

Petrol and diesel are not part of the GST regime. They include central excise duties as well as state taxes. In the past, these have been used as balancing tools.

Thankfully, India’s macroeconomic indicators are relatively stable. The current account deficit is hovering around 1 per cent, and inflation is also not very high. One reason inflation has stayed low is that fuel prices have remained constant.

So there is some headroom available. The government can reduce taxes and consumers may be able to absorb a ₹10–₹15 increase without inflation going out of control.

India is actually in a much better position with respect to crude oil and petrol and diesel compared to many other countries. We have already seen severe crises in smaller nations.

The content above has been transcribed from video using a fine-tuned AI model. To ensure accuracy, quality, and editorial integrity, we employ a Human-In-The-Loop (HITL) process. While AI assists in creating the initial draft, our experienced editorial team carefully reviews, edits, and refines the content before publication. At The Federal, we combine the efficiency of AI with the expertise of human editors to deliver reliable and insightful journalism.