As conflict disrupts LPG flows through the Strait of Hormuz, India confronts the risks of relying on a single maritime chokepoint for a fuel central to household welfare and economic stability
Image Source: Getty Images
The Strait of Hormuz sits at the centre of the world’s hydrocarbon trade. In 2024, around 20 million barrels per day of oil moved through the strait, equivalent to roughly 20 percent of global petroleum liquids consumption, making it one of the world’s most critical oil transit chokepoints. A disruption here interrupts vessel movement, raises freight and war-risk premia, delays cargo scheduling, and weakens confidence in forward supply. Liquefied Petroleum Gas (LPG) traffic through the corridor has been severely disrupted due to the current crisis in the Middle East, with cargo movements stalling and importers scrambling for replacements. For a country like India, where a large share of a welfare-sensitive fuel depends on seaborne imports, the global shock has quickly become a domestic allocation problem.
Figure 1: Oil Trade through the Strait of Hormuz
Source: EIA
India’s exposure is especially high because LPG is a mass household fuel that is import-dependent. India’s LPG imports account for around 60 percent of domestic consumption, and about 90 percent of those imports normally move through Hormuz. Thus, roughly 54 percent of normal LPG availability is under directly exposure if the corridor remains shut. This would have been manageable if LPG were a narrow industrial input. However, as of January 2026, India has around 332.1 million active domestic LPG connections and 104.29 million Pradhan Mantri Ujjwala Yojana (PMUY) connections. This scale of household dependence means that any prolonged disruption immediately raises concerns about welfare protection, delivery continuity, and the political economy of fuel rationing.
India’s LPG imports account for around 60 percent of domestic consumption, and about 90 percent of those imports normally move through Hormuz.
The structure of the LPG value chain explains why the shock cannot be absorbed easily. India receives LPG through two upstream channels – domestic production from refineries and gas-processing plants, and direct imports of propane-butane cargoes. These flows are then routed through coastal terminals, storage facilities, bottling plants, transport networks, and distributors before reaching households and commercial users. India has a large but tightly run system, with 215 bottling plants, 25,600 distributors, and average tankage that provides roughly 18 days of cover. That level of inventory is useful against short interruptions, but it does not provide strategic insulation against a sustained blockade. The system is built for steady throughput rather than prolonged external disruption. A delay at the maritime entry point therefore transits quickly downstream into bottling schedules, distributor supply, and regional availability.
The government’s immediate response has been of emergency stabilisation. It has invoked special powers to direct refineries and petrochemical complexes to maximise LPG production by diverting propane and butane into the domestic pool. These measures have raised domestic LPG output by 25 percent. At the same time, industrial and commercial allocations have been curtailed to protect household supply. The arithmetic is concerning. If the total normal supply is indexed at 100 and 54 units are exposed to Hormuz disruption, then the domestic supply of 40 units rises to 50 after a 25 percent increase, while the 6 units of non-Hormuz imports remain unchanged. That leaves the system at roughly 56 units before emergency imports and demand compression. Under such conditions, policy must naturally shift from market allocation toward priority allocation.
The structure of the LPG value chain explains why the shock cannot be absorbed easily.
This protectionist structure has uneven consequences across the economy. Households are likely to be shielded first because cooking fuel is politically sensitive and strongly linked to welfare policy. Businesses, especially restaurants, caterers, hotels, and small industrial users of commercial cylinders, will absorb the initial adjustment. Commercial allocations are being tightly controlled, and the government has advised the temporary use of substitute fuels in some segments to preserve household availability. Further, India is now securing LPG from alternative sources, including the United States, Russia, Norway, and Canada.
The economic effect will be the familiar supply-side shock: costs will rise first in sectors directly using the fuel, then spread through food services, local retail margins, and urban informal businesses. Research shows transport bottlenecks can feed into consumer prices with a measurable lag, especially where imported goods or inputs are concentrated in particular delivery channels. If the blockade persists, the LPG shock could therefore widen from a fuel problem into a localised inflation and business-survival problem.
The short- to medium-term economic response rests on three instruments: prioritisation, diversification, and logistics strengthening. Prioritisation is already visible in the government’s decision to preserve household supply and compress non-essential demand. Diversification is underway as India increases LPG sourcing from the US, Norway, Canada, and Russia. India had already arranged a 2.2 MTPA US LPG deal for 2026, equivalent to about 10 percent of annual imports. This highlights the resilience-efficiency trade-off: concentrated sourcing is cheaper in stable periods, but diversified supply networks reduce vulnerability when shocks hit. This implies India should treat alternative contracts as insurance rather than as an expensive deviation from normal procurement. More storage, terminal flexibility, rail evacuation, and pipeline connectivity would reduce the cost of using that insurance.
Under such conditions, policy must naturally shift from market allocation toward priority allocation.
A key policy objective during such a disruption is to avoid turning a supply shock into a broader inflationary episode. Broad, untargeted energy support can become fiscally costly and often benefits many users who do not need protection, while better-targeted support is more efficient and preserves fiscal space. Applied to India, that means preserving household access, especially for vulnerable consumers, while avoiding generalised subsidies that dull incentives to conserve or substitute. It also means ensuring that commercial rationing is transparent enough to discourage hoarding and black-market activity. The objective is both macroeconomic and distributive: once businesses begin passing higher fuel and transport costs through to prices, inflation expectations can harden, and a temporary logistics disruption can persist through wage and pricing behaviour.
The government can deploy certain fiscal tools to manage the extent of the crisis. The government could raise the LPG subsidy amount for a limited period, increase the refill cap, or extend a smaller temporary subsidy to non-PMUY low-income households through Direct Benefit Transfer. This will cushion welfare without creating a massive subsidy bill. To avoid a full pass-through of freight, war-risk insurance, and rerouting costs, the government can reimburse Oil Marketing Companies (OMCs) for the “crisis premium” through a time-bound budgetary transfer. This can work like a price-stabilisation buffer, smoothing the shock rather than permanently suppressing prices. Moreover, the government can reduce the stress from alternative sourcing (from Russia, the US, and Canada, among other suppliers) through interest subventions, sovereign-backed credit lines, or temporary guarantee windows for emergency energy imports.
The broader policy lesson is that resilience should not be built only at the point of crisis but should be built beforehand through diversified sourcing, deeper logistics, and alternative technologies that lower dependence on vulnerable trade routes.
The longer-run problem concerns energy security more broadly. A country of India’s scale cannot allow clean-cooking resilience to depend excessively on a single imported fuel passing through a single strategic chokepoint. This does not imply a rapid retreat from LPG, which remains central to household cooking. It does suggest a broader portfolio. Piped Natural Gas (PNG) can help in urban areas, though it also partly depends on imported gas. More durable domestic hedges include electric cooking and bioenergy. Induction stove sales have already surged amid fears of a shortage, showing how quickly households respond when reliability is threatened. On the supply side, India has 143.60 GW of cumulative solar capacity, and 195 compressed biogas plants are being set up across the country. Over time, a diversified cooking-energy mix would reduce exposure to any single external fuel route.
In economic terms, the Hormuz blockade is a concentrated external shock hitting a welfare-sensitive fuel through a narrow logistical corridor. The immediate challenge is allocation, the medium-term challenge is resilience, and the long-term goal is low-cost diversification. India can manage the first through production maximisation and household prioritisation. It can address the second through contracts, storage, and transport infrastructure. The third can be ensured by expanding a more secure domestic energy base for cooking. The broader policy lesson is that resilience should not be built only at the point of crisis but should be built beforehand through diversified sourcing, deeper logistics, and alternative technologies that lower dependence on vulnerable trade routes.
Arya Roy Bardhan is a Junior Fellow with the Centre for New Economic Diplomacy at the Observer Research Foundation.
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Arya Roy Bardhan is a Junior Fellow at the Centre for New Economic Diplomacy, Observer Research Foundation. His research interests lie in the fields of ...
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