India Natural Gas and LPG Supply Crisis - 2026

The ongoing military conflict between the United States, Israel, and Iran that erupted on 28 February 2026 has triggered a severe natural gas and LPG supply crisis in India. The effective closure of the Strait of Hormuz by Iranian forces following coordinated US-Israeli airstrikes on Iranian nuclear and military facilities has disrupted one of the most critical energy transit routes in the world. India, the world's second-largest LPG importer, depends on the strait for approximately 50% of its crude oil imports, 54% of its LNG needs, and 85 to 90% of its LPG imports from the Middle East.

The disruption began within hours of the military strikes on 28 February 2026, when Iran's Islamic Revolutionary Guard Corps broadcast VHF radio warnings prohibiting vessel passage through the strait. Tanker traffic dropped by roughly 70% within the first days, and by early March, transit had effectively ceased. Multiple vessels were attacked in and around the strait, killing several seafarers and prompting major shipping firms and insurers to suspend operations in the area. Protection and indemnity insurance was removed for transits starting 5 March, making the economic risk too high for ship owners.

In India, the effects became visible almost immediately. Qatar, India's largest LNG supplier providing around 40% of the country's LNG imports, halted production at one of its LNG facilities following an Iranian drone attack. Several international LNG suppliers invoked force majeure clauses and suspended deliveries. Asian LNG spot prices surged from roughly $8 per MMBTU to approximately $15 to $25 per MMBTU, more than doubling in just days.

The Indian government responded with a series of emergency measures. On 5 March 2026, the Ministry of Petroleum and Natural Gas issued an order directing all oil refineries to maximize LPG production by channeling available propane and butane toward domestic cooking gas output. The government also extended the inter-booking period for domestic LPG cylinders from 21 to 25 days to prevent hoarding and panic buying.

On 9 March 2026, the government notified the Natural Gas (Supply Regulation) Order, 2026, invoking powers under the Essential Commodities Act of 1955. This regulation established a four-tier priority framework for natural gas allocation based on each sector's average consumption over the preceding six months. Domestic piped natural gas for households, CNG for public transport, LPG production, and essential pipeline operations were classified as Priority Sector 1, receiving 100% of their normal supply. Fertilizer plants were placed in Priority Sector 2 with 70% allocation. Tea manufacturing, general industrial consumers connected to the national gas grid, and city gas distribution networks for commercial users were assigned to Priority Sectors 3 and 4, each receiving 80% of their average consumption.

To free up gas volumes for these priority sectors, the order mandated full or partial curtailment of supply to non-priority users. Petrochemical facilities operated by companies such as ONGC Petro Additions, GAIL Pata Petrochemical Complex, and Reliance O2C faced the steepest cuts. Oil refineries were instructed to reduce their gas consumption to approximately 65% of their six-month average, absorbing part of the LNG import shortfall. Power generation plants also faced significant supply reductions.

The consequences for Indian industry have been severe and widespread. The hospitality sector was among the first to be hit. Commercial LPG supplies to hotels and restaurants were effectively halted in multiple cities starting around 8 to 9 March 2026. In Mumbai, the Indian Hotels and Restaurants Association reported that approximately 20% of establishments had already shut down by 10 March, with warnings that 50% could close within days if supply was not restored. In Tamil Nadu, the Chennai Hotel Association estimated that nearly 10,000 restaurants and food establishments would cease operations. Similar crises were reported in Bengaluru, Delhi, Kolkata, Pune, Hyderabad, and cities across Karnataka, Telangana, and Andhra Pradesh. The National Restaurant Association of India warned that the entire sector, which generates annual revenue of approximately 5.7 trillion rupees and employs over 8 million people, was at risk of widespread operational collapse.

Black market activity surged in response to the shortages. In Punjab and Haryana, commercial LPG cylinders normally priced around 1,980 rupees were reportedly being sold for 2,500 to 3,000 rupees. IRCTC directed railway catering units to switch to microwaves and induction stoves as a temporary alternative. The Pune Municipal Corporation temporarily shut crematoriums due to restrictions on propane and butane use.

The petrochemical sector faces production cuts of up to 35%, affecting output of plastics, synthetic fibers, and chemical intermediates used across manufacturing supply chains. Fertilizer production, critical for the upcoming Kharif sowing season, has been reduced by 30%, although the government emphasized that strategic inventory buildup has created a buffer of 180.12 lakh metric tonnes of fertilizer stocks, up 36.6% from the same period in 2025. Power generation plants dependent on natural gas also face curtailment, though energy analysts have noted that India retains sufficient overall generation capacity to maintain grid stability in the near term.

The oil refining sector, with gas allocation reduced to 65% of normal levels, is adjusting operations to prioritize LPG extraction from crude oil processing. Reliance Industries announced proactive measures to maximize LPG output from its Jamnagar refining complex, the world's largest integrated refining hub.

The government is actively pursuing alternative supply sources. Discussions with Algeria, Australia, Canada, Norway, and the United States are underway. An existing contract for 2.2 million tonnes of LPG from the US Gulf Coast is being accelerated. On 11 March 2026, GAIL purchased an LNG cargo from Oman to partially offset the supply gap. The government has designated GAIL India Ltd., in coordination with the Petroleum Planning and Analysis Cell, as the entity responsible for managing physical gas diversions and implementing the revised allocation framework.

The crisis remains ongoing as of 11 March 2026, with no resolution in sight for the Strait of Hormuz disruption. The government has indicated that the Natural Gas Supply Regulation Order will remain in force as long as international supply conditions and the geopolitical situation require it.