India’s LPG Imports Face Squeeze as Hormuz Closure Forces Costly, Unreliable Workarounds

The successful transit of two Indian-flagged LPG tankers, the Jag Vasant and the Pine Gas, through the Strait of Hormuz earlier this week is a tactical win. It confirms that safe passage can be secured for some vessels, a development the Indian government has been pursuing diplomatically. These ships follow two others that made the same journey earlier this month, demonstrating a potential workaround for the waterway, which has been effectively closed since late February.

Yet the scale of this success is dwarfed by the disruption. India's total LPG imports for March are estimated at just 1.19 million tonnes. This collapse in supply is most acute from the region that normally provides the bulk of its needs. In the week to March 19, West Asian inflows fell to just 89,000 tonnes, the lowest share since January. For context, that week saw total weekly imports dip to 265,000 tonnes, with alternative sources like the U.S. stepping in to fill only part of the gap.

The bottom line is that while these tankers prove a path exists, they represent a tiny fraction of the total supply imbalance. The transit is a signal of shifting logistics, not a resolution of the underlying problem.

The Supply-Demand Balance Under Stress

India's LPG market operates on a razor-thin margin. The country's domestic production covers just 40% of its consumption, forcing it to import the remaining 60%. This structural dependency makes the system vulnerable, and the recent disruption has laid that vulnerability bare. Demand itself is under pressure, having hit a historic high of 2.8 million tonnes in February, a 10% year-on-year jump driven by the government's massive LPG connection program. The closure of the Strait of Hormuz has abruptly severed the primary artery for this supply, cutting off about 90% of incoming cargoes.

The immediate impact is a severe supply crunch. India's total imports for March are estimated at just 1.19 million tonnes, a 46% month-on-month collapse. This forces a rapid and costly pivot in sourcing. While US LPG loadings now surpass those from traditional Gulf suppliers, the trade-off is a massive delay. Cargoes from the Gulf take 7-8 days to reach India; those from the US take about 45 days. This creates a significant inventory gap and strains logistics. Other alternatives like Russia and Argentina have increased shipments, but their export structures are poorly suited for large-scale replacement, and volumes remain modest.

In this stressed equation, the transit of the two Indian tankers is a minor logistical adjustment. It represents a diplomatic workaround for a tiny fraction of the total supply imbalance, not a solution to the fundamental problem. The market is now navigating a new, more expensive, and less reliable supply chain, with the full weight of India's import dependency bearing down on every alternative source.

Market and Policy Implications

The immediate pressures on India's LPG market are now visible in the numbers and the daily grind. The government's response has been to pass on the cost, with the price of a standard 14.2-kg cylinder increased by ₹60 earlier this month. This hike pushed average prices in major cities to record highs, with Delhi and Mumbai hitting around ₹913 and ₹912.50 respectively. While prices have held steady in recent days, the increase itself is a direct signal of the strain, and the fact that they remain elevated shows the underlying cost pressures are not easing.

This is not just a headline figure. The strain is felt in the distribution network. Companies like Indane are adapting to manage customer demand amid shortages, launching a WhatsApp booking service for LPG refills. This move to digitize the refill process is a clear symptom of operational stress, aimed at streamlining what has become a more complex and uncertain supply chain.

The subsidy structure, designed to cushion the blow for households, is also under direct pressure. The government subsidizes up to 12 cylinders per household each year. Any additional cylinders must be purchased at the market price, which is directly linked to the volatile international benchmark. With global LPG prices spiking due to the supply disruption, the cost of buying beyond the subsidy limit has become a significant burden for many families.

In essence, the price hike, the distribution workarounds, and the tightening of the subsidy are all symptoms of the same underlying problem: a severe supply-demand imbalance. The market is trying to adjust, but the adjustments are costly and create new frictions for consumers and businesses alike.

Catalysts and Risks: The Path Forward

The new supply balance for India's LPG market is fragile, resting on a few key variables. The primary risk is the duration of the Hormuz closure. If the strait remains effectively shut, imports could fall further, and the alternative sources India is scrambling to secure may struggle to fill the gap. The structural dependency is too great for any single new supplier to replace the lost Gulf volumes quickly.

A major catalyst is the arrival of Iranian LPG cargoes. The first shipment is due this week, with more expected in the coming days. This represents a quicker, regional alternative to the 45-day US journey. However, the scale and reliability of these shipments remain uncertain. While Iran has stated vessels from "friendly" nations will be permitted passage, the actual volumes India can secure depend on final deals and the movement of ships out of the war zone. The government's reported purchase of a cargo from Iran is a positive signal, but it is a single data point against a massive deficit.

Another critical test is whether US LPG can sustain the planned pace. India's oil marketing companies are aiming for 2.2 million tonnes of LPG from the US in 2026. The trend of US loadings now surpassing those from traditional Gulf suppliers is encouraging, but maintaining that flow year-round is a different challenge. The 45-day transit time creates a significant inventory gap, and any disruption in US production or shipping could quickly strain the system.

Finally, watch for new long-term contracts. India is actively seeking diversification, with purchases from Norway, Canada, and Russia on the table. The success of these efforts will be measured by the signing of firm, long-term agreements that can provide stable volumes. For now, the market is operating on a series of short-term fixes and diplomatic workarounds.

The path forward hinges on these specific, measurable factors: the volume and consistency of Iranian shipments, the ability to maintain high US LPG volumes, and the signing of new supply contracts. Until these catalysts materialize, the risk of further deterioration in the supply-demand balance remains high.