War in the Gulf, shockwaves at home: What the US-Iran conflict means for India’s energy

A sudden escalation in the US-Iran conflict has effectively turned the Strait of Hormuz, one of the world’s most critical energy chokepoints, into an active conflict zone. With Iran imposing an effective closure, major global shippers suspended all vessel crossings. The Strait, through which nearly 20% of global petroleum liquids and 20% of global LNG flows, has witnessed vessel attacks, delays, and soaring war risk premiums, triggering a sharp surge in global energy prices. Benchmarks Brent and WTI jumped nearly 8-9% in a single session, a classic sign of a logistics-driven shock.   

For India, one of the world’s most import-dependent energy economies, the turbulence is not distant. The country imports 89% of its crude oil and 50% of its natural gas, with a large portion routed through the Strait of Hormuz. Even without a full blockade, prolonged tension tightens supply, disrupts shipping schedules, and raises delivered fuel costs.   

Given the current situation, gas supply poses a more critical concern for India than crude oil. In terms of petroleum product storage, India is comfortably placed having a buffer against short-term crude supply disruptions. Whereas natural gas has significantly lower storage days, making the system more vulnerable to prolonged supply disruptions. The fertilizer sector is highly dependent (more than 80% in recent years) on imported gas, where uninterrupted supply is essential for food security, followed by the city gas distribution (CGD) segment (more than 35% in recent years), which directly affects households and transport. Hence, the closure of the Strait of Hormuz for another few weeks could pose constraints for gas availability, leading to operational and economic impacts.   

Qatar, whose LNG exports traverse the Strait of Hormuz, has already halted production and declared force majeure after recent attacks, this may lead to gas supply disruptions for more than 2-3 weeks. This has sent European gas prices soaring 30-50% overnight along with severe price implications in the Indian context as well, additionally, there remains possibility of further spikes if the situation does not improve. This ripple has reached Indian industries as gas supplies to several industrial consumers are expected to be rationed after Qatar declared force majeure on some LNG cargoes.   

Why this shock is more dangerous than an oil-only crisis  

Unlike crude, which benefits from large national storage buffers and floating inventories, LNG in India is effectively a just in time commodity. Cargo movements cannot be easily rerouted without major delays and cost spikes. This is why analysts warn that LNG markets can feel the pain earlier than oil during the Middle East crisis. A more alarming outcome of the Middle East crisis is the structural shift it introduces in the global gas markets, more and more long‑term LNG contracts across Asia will increasingly be displaced by costlier spot‑market dependence. This is expected to tighten spot market conditions and drive higher energy prices, which would directly transmit into broader inflationary pressures and potentially prompt a more aggressive monetary policy response. 

LNG storage limits: An area of strategic improvement in India 

India’s LNG terminals have tanks meant largely for operational balancing, not long-term strategic reserves. Recognising this vulnerability, the government has proposed mandating an additional 10% LNG storage at terminals for emergency use, the proposal is still under review. India may also consider creating dedicated LNG storage reserves near existing terminals, these may be overground or underground facilities, for both commercial balancing and other emergencies such as the Middle East conflict. Overground facilities may be prioritised over underground salt caverns on account of lower constructions times and capital requirement. This is imperative since India holds only 20 days of gas inventory (including supplies in transit) and more than 50% of India’s LNG supplies come from Qatar through the Strait of Hormuz.   

What India can and must do now 

To weather the ongoing Middle East conflict and the consequent energy volatility, it is imperative for India to diversify its LNG portfolio by enhancing spot sourcing from non-Middle Eastern suppliers and securing destination‑flexible contracts that enable expeditious rerouting during disruptions of chokepoints such as the one that is being experienced right now. Simultaneously, India must build stronger strategic buffers by accelerating the proposed 10% LNG storage mandate, this may be done by introducing mechanisms such as a small surcharge on usage of gas which can be used to finance the capital expenditure on new storage infrastructure without the need for viability gap financing.

Equally crucial is the need to protect the fertiliser sector from its vulnerable position, this may be done by exploring financial hedging mechanisms for LNG procurement and accelerating green ammonia pilot projects to effectively curb long‑term dependence on imported LNG. Lastly, it would serve India well to work closely with global insurers and maritime partners to maintain flexibility during such conflicts so that financial restrictions do not translate into physical supply restrictions.   

Prepare, don’t panic 

Geopolitical conflicts are cyclical; energy insecurity does not have to be. India has already built several shock absorbers like enhancement of injection of domestically produced compressed biogas (CBG) into CGD networks along with support from growing support infrastructures such as a rapidly growing gas pipeline network and increased LNG import facilities in regions beyond West Coast of India to allow for easier transport of gas from regions other than the Middle East. But this Middle East crisis is a stark reminder that gas is India’s Achilles’ heel.   

A resilient response will need to be rooted in the need for (1) diversification with the intent to reduce dependence and concentration risk, (2) in the establishment of strong and resilient strategic buffers and storage capacities rather than myopic bandaids, and (3) in proactive and farsighted strategic planning rather than reactive firefighting.   

If the Strait of Hormuz is the world’s most fragile artery, then strengthening India’s own energy infrastructure is the only sustainable way forward. 

(The author is partner - oil & gas, Grant Thornton Bharat. Views are personal.)