Whalesbook
Energy Crisis Hits Glass Production, Drives Up Prices
India's once-robust glass manufacturing industry is grappling with a severe energy crisis, forcing widespread production cuts and significant price hikes. The main issue is a sharp reduction in natural gas supplies, caused by rising geopolitical tensions in the Middle East that have disrupted key fuel import routes, especially through the Strait of Hormuz. This energy shock has cut gas supplies by over 20% since early March. This has led to a nearly 40% drop in output across manufacturing hubs like Firozabad, Uttar Pradesh. Manufacturers report operating at much lower capacities, with some units halting operations entirely because the cost of alternative fuels, such as spot gas, is too high. To cover soaring operational expenses, glass producers have raised prices by up to 20%, a move that impacts the entire supply chain. The crisis is particularly damaging as it coincides with the peak season for international festive demand, causing export shipments to fall by as much as 20% in March. The broader manufacturing sector is also affected, with the HSBC India Manufacturing PMI falling to a near four-year low of 53.9 in March 2026, showing a slowdown caused by energy shocks and higher costs.
India's Reliance on Imports Leaves It Vulnerable
This crisis highlights India's deep vulnerability from relying heavily on imported fossil fuels. India imports about 50% of its natural gas and over 90% of its LPG from the Middle East, a dependency that increases its exposure to global political instability. Unlike crude oil, which has more diverse import routes and spot markets, LPG purchases are heavily dependent on long-term contracts and concentrated supply chains, creating a key bottleneck at the Strait of Hormuz. Previous energy shocks, such as the 2003 Gulf War and the 2008 oil price spike, have repeatedly shown this weakness, leading to larger trade deficits and higher inflation. The current situation has forced the government to divert gas supplies from industries to households. While this addresses immediate social needs, it worsens the energy crunch for manufacturers. Relying on unstable global energy markets not only affects production costs but also hinders India's goal of becoming a global manufacturing hub. Studies have shown that rising energy prices negatively impact investment and weaken the sales-growth-investment link in India's manufacturing sector, requiring a better energy policy.
Wider Industry Concerns and Risks
The current energy crisis highlights several critical risks for India's industrial system. First, the government's choice to prioritize household energy needs over industrial supply, though politically sensible, weakens manufacturing competitiveness. This leaves India open to global price shocks and supply issues, possibly harming its export advantage, especially when compared to China, which has more diverse energy sources. Second, the disruption affects more than just manufacturing inputs, directly threatening the supply chains of major end-users. Companies like Diageo Plc, Pernod Ricard SA, and Radico Khaitan Ltd., reliant on glass packaging, face potential disruption. S R Glass Industries has already paused new customer acquisition plans. The impact on export markets is worsened by soaring freight and insurance costs due to heightened risks in Gulf shipping routes, with shipping costs to Europe reportedly rising by over 60%. This combination of higher input costs and lower export revenues puts significant financial strain on businesses. The energy-intensive nature of glass manufacturing means prolonged shortages could cause irreversible damage to furnaces and substantial financial losses, threatening many small and medium-sized businesses. The World Bank has warned of risks to India's growth forecast, projecting a slowdown to 6.6% for FY27 due to these external pressures, with the current account deficit expected to worsen significantly.
Outlook Remains Uncertain
Experts are skeptical about a quick return to normal in global energy markets. The ongoing Middle East conflict, described as being 'in the fog of war without a settlement,' suggests a prolonged period of market instability. Manufacturers expect glass production disruptions to continue for months, creating significant uncertainty for the sector and the economy. The Confederation of Indian Industry (CII) is urging faster progress toward sustainable and self-reliant energy systems. It emphasizes that renewable investments are strategic necessities to reduce exposure to geopolitical energy shocks, not just climate goals. Tata Steel CEO T V Narendran called India's energy and critical minerals diversification a 'layered vulnerability,' highlighting complex future challenges. This situation highlights the urgent need for India to strengthen its energy security by diversifying sources, building strategic reserves, and investing in domestic energy and renewable infrastructure to reduce future shocks.