Whalesbook
India Energy Market Sees Mixed Performance Amid Global Tensions
India's energy market in March 2026 showed a clear split, with liquefied petroleum gas (LPG) consumption experiencing a sharp drop while demand for refined fuels like petrol and diesel saw strong increases. The fall in LPG was directly linked to severe supply chain disruptions from the escalating conflict in West Asia, which affected key import routes. Official data from the Oil Ministry's Petroleum Planning and Analysis Cell (PPAC) showed a 12.8% year-on-year drop in LPG consumption, down to 2.379 million tonnes from 2.729 million tonnes in March 2025.
Commercial Users Hit Hardest by LPG Shortages
The geopolitical turmoil, especially disruptions around the Strait of Hormuz—a vital transit point for about 60% of India's LPG imports—significantly reduced shipments from key suppliers like Saudi Arabia and the UAE. This shortage led the government to prioritize household cooking gas by cutting supplies to commercial users. As a result, domestic household LPG sales fell by 8.1% to 2.219 million tonnes. However, commercial usage saw a sharp drop of nearly 48%, with bulk LPG sales plummeting by a staggering 75.5%. This steep fall in commercial demand contrasts with government promises of steady supplies for households, showing the crisis hit industrial and hospitality sectors hard.
Domestic LPG Production Boosted Amid Import Issues
To address the supply shortfall, Indian refineries were instructed to divert feedstock from petrochemical production to boost LPG output. This action resulted in higher domestic LPG production, reaching 1.4 million tonnes in March 2026, up from 1.1 million tonnes a year earlier. For the full fiscal year 2025-26, this effort helped total domestic production reach 13.1 million tonnes. Despite the March disruption, overall LPG consumption for the fiscal year ending March 2026 still rose by 6%, reaching 33.212 million tonnes. This growth reflects underlying demand driven by government efforts to promote cleaner cooking fuels.
Petrol and Diesel Demand Strong
In stark contrast to LPG's performance, demand for petrol and diesel remained strong. Petrol sales increased 7.6% to 3.78 million tonnes in March, while diesel consumption rose 8.1% to 8.727 million tonnes year-on-year. This strength in transportation fuels suggests continued economic activity, likely supported by stable retail prices. State-run oil marketing companies (OMCs) managed these prices by absorbing costs. For the full fiscal year, petrol consumption grew 6.5% and diesel demand increased by 3.6%. Aviation turbine fuel (ATF) demand, however, showed flat growth at 807,000 tonnes, attributed to airspace restrictions in affected Gulf countries.
Key Vulnerabilities: Import Reliance and Geopolitical Risk
India's heavy reliance on energy imports—around 88-90% for crude oil and 60% for LPG—remains an ongoing weakness. Repeated disruptions from geopolitical tensions in West Asia, especially concerning the Strait of Hormuz, leave the economy open to price swings and supply shocks. While government actions, such as excise duty changes, have largely prevented immediate price hikes for consumers, worries remain that a prolonged conflict could raise prices and strain government finances. India's strategic storage capacity for LPG, at about 20 days, is much lower than in many developed countries, adding to its vulnerability. The Indian oil and gas market is projected for significant growth, with demand expected to reach 5.99 million barrels per day by 2026, highlighting the critical need for better energy security.
India's deep reliance on imported oil and gas remains a major risk, despite efforts to diversify supply and boost domestic output. Vulnerability to key shipping lanes like the Strait of Hormuz, which handles much of global energy trade, is a major worry. The current crisis shows how quickly geopolitical events can create domestic supply problems for both commercial and household users. Additionally, India's limited strategic reserves for fuels like LPG mean the country is less prepared for long supply cutoffs than some countries. Fossil fuels, making up about 75% of India's primary energy, expose the nation to constant price swings and geopolitical influence. The threat of rising inflation persists if energy prices continue to climb due to ongoing conflicts.
Outlook for India's Energy Sector
India's energy sector is expected to see continued demand growth, driven by economic expansion and rising per capita consumption. Policy efforts are focused on improving energy security through domestic production, strategic reserves, and varied supply routes. At the same time, there's a faster shift towards renewable energy sources, with major investments and capacity growth in solar and wind power, making these key future growth areas. Experts see strong opportunities across both traditional and renewable energy markets, though the near future will likely depend on geopolitical events in energy-producing regions.