Why West Asia war is turning out to be a perfect storm for India’s auto industry
The increase in logistics costs for exports destined for Europe and the US have added to its woes.
- Mar 19, 2026,
- Updated Mar 19, 2026 8:18 PM IST
India’s auto and auto component industry faces its biggest challenge yet as gas shortages triggered by the West Asia war have hit manufacturing of auto parts. The increase in logistics costs for exports destined for Europe and the US have added to its woes.
From casting and forging to painting, Piped Natural Gas (PNG) and Liquefied Petroleum Gas (LPG) are extensively used in auto component manufacturing.
“The way things have panned out is that there are some pockets where industries are getting the promised 80% supply. However, there are some pockets across the country where there is no supply,” says Vinnie Mehta, director general of ACMA.
Industrial clusters where electricity comes from gas-powered captive power generators are facing the biggest brunt, Mehta says. Auto component clusters across Pune, Chhatrapati Sambhajinagar, Nashik, Bengaluru, Hosur, Chennai, Haryana and Ludhiana have been impacted, he adds.
The government has prioritized gas for households and transport fuels (CNG), leaving industrial users with supply capped at about 80% of their past six-month average consumption.
What is particularly worrying is that small suppliers have been the hardest hit. “If SMEs are not able to supply, vehicle production gets disrupted,” says Mehta.
The current gas squeeze could disrupt parts of India’s auto component supply chain in March, warns Poonam Upadhyay, Director, Crisil Ratings. “The pressure is most visible in gas-intensive processes such as forging, casting, heat treatment, coating operations, and sheet cutting, all of which are essential for making components like gears, steering parts and door panels,” Upadhyay adds.
The immediate impact is likely to show up in pockets of the supplier network rather than across the entire industry, believes Crisil’s Upadhyay. “Smaller vendors that rely on gas for these processes typically run with limited fuel buffers while working on tight delivery schedules for Tier-1 suppliers and OEMs. If fuel availability remains tight, dispatches from these supplier clusters could slow, though larger manufacturers may still manage through inventories, alternate fuels, and production rescheduling,” she adds.
Over the years, vehicle manufacturers and the auto ancillary industries transitioned from oil-based fuels to gaseous fuels primarily due to environmental considerations. Subhabrata Sengupta, partner at Avalon Consulting, says, the government has driven a shift from fuel oil to cleaner fuels such as LPG and CNG over the years. “However, storage capacity for such fuels in plant is limited, which makes such operations more vulnerable to supply disruptions,” Sengupta adds.
The auto component industry is also bracing for higher input cost of raw materials such as polymers, carbon black, and aluminium among others. “Aluminium scrap is in short supply. Some aluminium companies have declared force majeure. This will hit components used in electric vehicles,” says ACMA’s Mehta. The spike in crude oil prices are set to make raw materials like synthetic rubber and carbon black expensive for the tyre industry.
While India’s auto component exports to West Asia are only $1 billion, shipments to Europe and the US are now taking the longer route through the Cape of Good Hope, further adding to costs.
Meanwhile, the Society of Indian Automobile Manufacturers (SIAM) last week wrote a letter to the ministry of petroleum and natural gas stating that any restrictions in the supply of liquefied petroleum gas (LPG), piped natural gas (PNG) and propane to the automobile sector and its ancillary industries may adversely impact the supply chains of vehicle manufacturers, potentially leading to disruptions in vehicle production across the country, triggering reduced manufacturing and allied employment challenges.
India’s auto and auto component industry faces its biggest challenge yet as gas shortages triggered by the West Asia war have hit manufacturing of auto parts. The increase in logistics costs for exports destined for Europe and the US have added to its woes.
From casting and forging to painting, Piped Natural Gas (PNG) and Liquefied Petroleum Gas (LPG) are extensively used in auto component manufacturing.
“The way things have panned out is that there are some pockets where industries are getting the promised 80% supply. However, there are some pockets across the country where there is no supply,” says Vinnie Mehta, director general of ACMA.
Industrial clusters where electricity comes from gas-powered captive power generators are facing the biggest brunt, Mehta says. Auto component clusters across Pune, Chhatrapati Sambhajinagar, Nashik, Bengaluru, Hosur, Chennai, Haryana and Ludhiana have been impacted, he adds.
The government has prioritized gas for households and transport fuels (CNG), leaving industrial users with supply capped at about 80% of their past six-month average consumption.
What is particularly worrying is that small suppliers have been the hardest hit. “If SMEs are not able to supply, vehicle production gets disrupted,” says Mehta.
The current gas squeeze could disrupt parts of India’s auto component supply chain in March, warns Poonam Upadhyay, Director, Crisil Ratings. “The pressure is most visible in gas-intensive processes such as forging, casting, heat treatment, coating operations, and sheet cutting, all of which are essential for making components like gears, steering parts and door panels,” Upadhyay adds.
The immediate impact is likely to show up in pockets of the supplier network rather than across the entire industry, believes Crisil’s Upadhyay. “Smaller vendors that rely on gas for these processes typically run with limited fuel buffers while working on tight delivery schedules for Tier-1 suppliers and OEMs. If fuel availability remains tight, dispatches from these supplier clusters could slow, though larger manufacturers may still manage through inventories, alternate fuels, and production rescheduling,” she adds.
Over the years, vehicle manufacturers and the auto ancillary industries transitioned from oil-based fuels to gaseous fuels primarily due to environmental considerations. Subhabrata Sengupta, partner at Avalon Consulting, says, the government has driven a shift from fuel oil to cleaner fuels such as LPG and CNG over the years. “However, storage capacity for such fuels in plant is limited, which makes such operations more vulnerable to supply disruptions,” Sengupta adds.
The auto component industry is also bracing for higher input cost of raw materials such as polymers, carbon black, and aluminium among others. “Aluminium scrap is in short supply. Some aluminium companies have declared force majeure. This will hit components used in electric vehicles,” says ACMA’s Mehta. The spike in crude oil prices are set to make raw materials like synthetic rubber and carbon black expensive for the tyre industry.
While India’s auto component exports to West Asia are only $1 billion, shipments to Europe and the US are now taking the longer route through the Cape of Good Hope, further adding to costs.
Meanwhile, the Society of Indian Automobile Manufacturers (SIAM) last week wrote a letter to the ministry of petroleum and natural gas stating that any restrictions in the supply of liquefied petroleum gas (LPG), piped natural gas (PNG) and propane to the automobile sector and its ancillary industries may adversely impact the supply chains of vehicle manufacturers, potentially leading to disruptions in vehicle production across the country, triggering reduced manufacturing and allied employment challenges.