Iran crisis may hit India via LNG shortage more than oil; industries face early signs of gas supply stress: Report

India could face a bigger risk from liquefied natural gas (LNG) supply disruption than crude oil shortages if the Iran conflict continues, with the Strait of Hormuz emerging as the key pressure point for the country’s energy security, according to a report titled “Iran Crisis: Implications for India and the Markets” by Shriram Asset Management.

The report said LNG supply risk is more serious than oil risk for India because the country has limited alternatives for gas imports, while crude oil can still be sourced from other regions. India is heavily dependent on the Strait of Hormuz for energy supplies, with nearly 55–65% of LNG imports passing through the narrow shipping route, and Qatar alone accounting for about 40% of India’s gas imports. Any prolonged disruption in the region could therefore create an immediate supply shock.

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The crisis escalated after coordinated US and Israeli strikes on Iran’s nuclear and military infrastructure in late February, followed by Iranian retaliation across the Gulf region. The situation worsened after Iran began laying naval mines in the Strait of Hormuz, raising fears of a near shutdown of one of the world’s most critical energy transit routes. Around 150 vessels, including oil and LNG tankers, normally pass through the strait daily, and even the risk of mines can halt shipping as insurers refuse to cover tankers entering a conflict zone.

The report noted that while oil markets reacted sharply to the developments, India may be able to partly offset crude supply disruptions by increasing imports from Russia or using alternative shipping routes from Saudi Arabia. However, LNG supplies are far harder to replace because global spot availability is limited and shipments from the US, Africa or Australia involve longer transit times and higher costs.

Early signs of stress are already visible in India’s domestic market. Gas shortages have begun affecting several industries as available supplies are being diverted to priority sectors such as households, hospitals and fertiliser production. Fertiliser and chemical manufacturers, which depend heavily on imported feedstock, are facing risks to output, while city gas distribution companies have reportedly cut supplies to industrial and commercial users.

Ceramics and building material units, particularly in Gujarat, have also reported sharp reductions in gas availability, with some factories estimated to have fuel stocks for only a few days of operations. The report added that LPG supply constraints have already led to booking delays in several regions, and domestic cylinder prices were recently increased by the government amid tight supply conditions.

Higher energy prices could also hurt corporate earnings if the disruption continues. Estimates suggest that a sustained $20 per barrel increase in crude oil prices for a year could reduce earnings growth by about 4%, with additional downside risk from gas shortages, production cuts and weaker demand.

At the same time, some sectors may benefit from the crisis. Upstream oil and gas producers, refiners and metal companies could see higher realisations due to elevated global commodity prices, even as most manufacturing and consumption-linked sectors face margin pressure.

The report said the situation remains highly uncertain, but a prolonged disruption in the Strait of Hormuz could keep global energy markets tight through the coming months, making LNG availability the biggest near-term risk for India.