Indian Prime Minister Narendra Modi called Iranian President Masoud Pezeshkian within hours of Tehran’s new supreme leader vowing to keep the Strait of Hormuz closed, as New Delhi scrambles to mitigate energy supply risks.
That was Modi’s first call to Iran since the war broke out, as the world’s third-largest importer of oil and second-largest consumer of liquefied petroleum gas grapples with rising energy costs and panic-buying amid tightening supplies due to the closure of the critical waterway.
India has relied on supplies from the Strait of Hormuz to meet about 50% of its crude oil needs, as per Citi, while importing most of its LPG — the primary cooking fuel used by commercial establishments as well as households — through this route.
“The safety and security of Indian nationals, along with the need for unhindered transit of goods and energy, remain India’s top priorities,” Modi said in a post on X, sharing details of his conversation with the Iranian leader.
While petrol pumps have “adequate stocks,” there is panic-buying of LPG, which is leading to supply constraints, government officials said in a press conference on Thursday.
The government has even directed pollution control boards to allow the use of fuels such as kerosene, biomass, and coal by the hospitality sector, as the world’s most populous country prioritizes LPG supply to households.
Nearly 330 million households and over 3 million businesses in India use LPG cylinders. Many restaurants are closing or have curtailed their menu due to the shortage of LPG cylinders available for commercial use, according to a statement by the National Restaurant Association of India shared with CNBC.
“India needs more oil and gas,” said Nikhil Bhandari of Goldman Sachs, on CNBC’s “Squawk Box Asia,” adding that the country is highly dependent on supplies from the Strait of Hormuz and has a “much lower” inventory cushion than other north Asian markets.
Rising costs
Citi estimates a 50 basis points to 75 basis points “upward risk” to its India consumer inflation forecast of 4% for the financial year ending March 2027.
The brokerage said in a note on Thursday that if oil prices remain around $90 per barrel to $100 per barrel, fuel prices could rise by 5 rupees per liter to 10 rupees per liter, which alone can lead to an impact of up to 50 basis points on consumer inflation.
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Global brokerage Nomura, meanwhile, raised India’s consumer inflation forecast to 4.5% from 3.8% for the financial year ending March 2027, saying that the crunch in commercial LPG risks pushing up prices charged by restaurants.
India is facing rising energy costs and shortages, which could lead to “multiple sources of inflationary pressure,” if the disruptions in supply chains sustain beyond a month, Nomura said in its note on Thursday.
While the government is prioritizing supply to consumers, the curbs that were brought in after the war broke out have also restricted access for households. Urban consumers will have to wait for 25 days between LPG bookings as against 21 days earlier, while households in rural areas need to wait 45 days.
Amid the supply constraints, the government has already raised price of the cooking fuel by 60 rupees per cylinder or about 6.5% for most consumers, but experts warn that the ongoing election campaigns in five key states will limit the government’s ability to pass on the cost of rising fuel prices to consumers.
The rupee, meanwhile, has been hovering near record lows, hitting at 92.48 against the U.S. dollar on Friday, as traders factor in the risk of oil prices staying higher for longer.
If oil prices rally past and average $100 per barrel, India’s the current account gap could widen by 70 basis points, Radhika Rao, senior economist and executive director at DBS Bank Singapore, told CNBC.
India’s current account deficit was 1.3% of its GDP as of the end of December 2025, but if the gap widens due to the pressure of rising oil prices, it will lead to currency depreciation.
No safe passage
Data from energy intelligence firm Kpler shows that there were at least 130 million barrels of oil stranded in the Middle East Gulf as of Thursday, but India has been unable to access that, as Iran has blockaded trade via the Strait of Hormuz.
The country has been seeking safe passage for its ships — 28 of which, with nearly 800 Indian seafarers, are stranded in the strait. India’s Foreign Minister S. Jaishankar has had several conversations with his Iranian counterpart Seyed Abbas Araghchi in recent days, according to the country’s foreign ministry.
“The last one [meeting] discussed issues pertaining to [the] safety of shipping and India’s energy security,” a ministry spokesperson said, adding that sharing anything beyond this would be “premature,” signaling that Indian vessels were unlikely to get a respite from the blockade.
“If Hormuz remains closed beyond the near term, India will be forced into a structural reconfiguration it was never fully prepared for, at a cost premium it may not be able to afford,” said Reema Bhattacharya, head of Asia risk insight, corporate risk and sustainability at business advisory firm Verisk Maplecroft.
India is now sourcing crude from more than 40 countries, with purchases from Russia touching 1.46 million barrels per day in March, compared to 1 million barrels in February, according to data from Kpler.
Muyu Xu, a senior analyst at the firm, said that market chatter indicates that India has recently bought Russian Urals for March and April delivery at a premium of $5 dollars per barrel against Dated Brent.
India cannot “realistically rewire” its energy supply chains in a month or two, owing to global constraints and higher costs, said Bhattacharya.
Source: CNBC