India Reshapes LPG Import Mix as Retailers Buffer Shock

Key Moments

Import Diversification Accelerates Amid Conflict

India significantly altered its liquefied petroleum gas (LPG) sourcing strategy during the conflict in West Asia, shifting away from its traditional dependence on Gulf suppliers. State-owned fuel retailers simultaneously absorbed a large share of the surge in international prices in an effort to cushion households from the full impact of the shock.

Before the conflict, about 90 per cent of India’s LPG imports were supplied by West Asian producers, leaving the country highly vulnerable to disruptions in that region. A Crisil report noted that by April 2026, the United States supplied nearly one-third of India’s LPG imports, a steep increase from 8 per cent in February.

This repositioning was supported by a 2.2 million tonne-per-year LPG supply contract signed with the United States in late 2025, representing around 10 per cent of India’s annual import requirement.

Iran also returned as a supplier, accounting for roughly 6 per cent of imports in April. Additional volumes were sourced from countries including Argentina, Chile, France and the Netherlands, broadening India’s supplier base beyond the Gulf.

While the more diversified sourcing structure helped sustain supply flows through the conflict, it also extended supply chains and raised freight costs.

Demand Suffers as Prices and Constraints Bite

The disruption had a pronounced effect on consumption. LPG demand dropped to 2.47 million tonnes in April from 3.2 million tonnes in February as tighter availability and higher prices weighed on usage.

After expanding 6 per cent to a record 33.2 million tonnes in fiscal 2026, LPG consumption reversed course. According to the report, demand fell 13 per cent year-on-year in both March and April, followed by a 20 per cent year-on-year decline in May.

Commercial and industrial users experienced the steepest pullback. Their consumption dropped more sharply than that of households, as these market-linked customers adjusted rapidly to higher prices and logistical constraints.

Price Dynamics and OMC Under-Recoveries

Crisil reported that the conflict drove a sharp uptrend in global LPG prices. The Saudi Aramco Contract Price – the benchmark for India’s LPG imports – climbed 46 per cent between February and June as markets reacted to supply risks and higher freight costs.

Only part of this increase reached end users. In Delhi, the price of a 14.2-kg household LPG cylinder rose about 10 per cent between February and June, while the price of a 19-kg commercial cylinder surged more than 79 per cent over the same period.

The relatively modest adjustment in household cooking gas prices translated into substantial under-recoveries for oil marketing companies, as procurement costs outstripped retail realizations. Crisil noted that under-recoveries on domestic LPG cylinders in Delhi rose to ₹651 per cylinder in May, while cumulative losses borne by fuel retailers over March-May were estimated at nearly ₹22,000 crore.

Outlook and Structural Vulnerabilities

The report indicated that easing tensions in West Asia and prospects for reopening key trade routes are expected to alleviate immediate supply pressures and help cool global LPG prices.

Even so, the episode highlighted India’s enduring reliance on imported LPG and the risks associated with a concentrated supplier base. While the diversification push and higher domestic output mitigated some of the impact, the sector continues to face exposure to geopolitical shocks, freight market volatility and pronounced swings in international energy prices.

The report concluded that these dynamics underscore the need for India to maintain a wider and more resilient LPG import portfolio.