India’s LPG Dependence on the U.S.: Energy Security Risks and Diversification

India’s LPG Dependence on the U.S. Latest News

• Union Minister of Petroleum and Natural Gas Hardeep Singh Puri recently revealed that 67% of India’s liquefied petroleum gas (LPG) now comes from the United States — a dramatic shift from the earlier practice of sourcing only about 10% from America. 
• This transformation, driven by disruptions in the Strait of Hormuz, raises important questions about India’s energy security strategy.

Background: Why the Shift Happened

• India is the world’s second-largest LPG importer, relying on imports for about 60% of its consumption, with nearly 90% traditionally passing through the Strait of Hormuz. 
• When the Strait faced disruptions this year, India’s LPG imports from West Asia fell by almost 85% between February and June 2026. 
• To manage this crisis, India turned to the U.S., backed by a long-term deal for 2.2 million tonnes for 2026 signed by state-run oil refiners. 
• U.S. imports rose to 0.77 million metric tonnes in June alone, up 19.4% from May.

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Why Over-Reliance on the U.S. Is Risky

• Diversifying away from West Asia was a prudent crisis response, but shifting overdependence to a single new source — especially one with a history of using energy as a foreign policy tool — carries its own risks. 
• The U.S. has previously used financial sanctions, export controls and technology restrictions against countries like Iran, Russia and Venezuela. 
• Even in commercial ties, Washington can influence third-country transactions, as seen in proposed legislation like the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026, which proposes steep tariffs on major buyers of Russian oil and gas. 
• Unlike West Asian supplies, which are largely governed by long-term Sale and Purchase Agreements (SPAs), U.S. energy exports are more exposed to shifting trade and political agendas.

The Economics: Losing Proximity Pricing

• Geography matters in LPG trade. Shipments from the Gulf typically take just 5-10 days, while U.S. shipments take 25-35 days. 
• Though U.S. LPG (Mont Belvieu propane-based) can be cheaper at the point of production, West Asian LPG (Saudi Aramco CP) is usually cheaper on arrival due to shorter shipping distances — though this calculus has temporarily shifted due to elevated geopolitical risk. 
• Notably, Gulf benchmark prices (Saudi CP) surged nearly 46% between February and June 2026, from about $543 to $790 a tonne, making the costlier but more reliable U.S. cargoes relatively attractive.

Why Cooking Gas Is a “Political Fuel”

• For India, LPG is not just a commodity but a politically sensitive one — shortages can trigger social and political consequences. 
• This is why the government’s priority during the crisis was ensuring availability rather than optimising costs, even if it meant paying more for U.S. supplies.

Hidden Risks: Currency and Fiscal Pressure

• While India may have reduced its exposure to Strait of Hormuz risk, it now faces other vulnerabilities — commodity price swings, dollar fluctuations and freight costs. 
• If U.S. inflation stays high, the Federal Reserve may keep interest rates elevated, strengthening the dollar and raising the rupee cost of each imported cargo. 
• If domestic LPG prices are kept artificially low despite rising global prices and a weaker rupee, oil marketing companies face wider under-recoveries. 
• The government has already informed Parliament that accumulated under-recoveries of public sector oil marketing companies (OMCs) crossed ₹59,000 crore as of July 31, 2026.

The Domestic Production Gap

• India’s LPG demand continues to outpace domestic supply. 
• As of July 1, 2026, PSU oil companies (Indian Oil, Bharat Petroleum, Hindustan Petroleum) had 33.14 crore active domestic LPG customers, growing at a compound annual growth rate of 7.6% between 2015 and 2026. 
• In the first quarter of FY27, domestic LPG production stood at just 4.3 million metric tonnes against consumption of 6.5 million metric tonnes. 
• In response to the crisis, refineries were directed to maximise LPG output, and daily production was ramped up from 34,000 tonnes to 55,000 tonnes at the peak of the disruption — production rose 35.73% year-on-year in Q1 FY27.

The Way Forward

• Experts suggest India should look beyond both West Asia and the U.S. for diversification. 
• Australia offers strategic advantages — it lies in the Indo-Pacific, outside the Hormuz chokepoint, and offers shorter shipping routes than the U.S., though its export volumes remain small. 
• Argentina, Nigeria and Angola could offer additional strategic agility, though none can replace Gulf volumes at scale. 
• The core principle of energy security is not simply substituting one dependence for another, but ensuring no single supplier holds excessive leverage. 
• This requires strengthening domestic production, diversifying supply chains, improving forex hedging tools for OMCs, and building larger strategic reserves.

Conclusion

• India’s pivot to U.S. LPG solved an immediate crisis but created new vulnerabilities tied to dollar strength, U.S. trade politics and shipping costs. 
• True energy security lies not in swapping one dependency for another, but in building diversified, resilient supply chains alongside stronger domestic production capacity.

Source: TH