India's gas crisis: Massive 40% supply cut to send electricity and food prices skyrocketing amid Iran-US conflict

India is facing a major energy crisis as Qatar cuts LNG exports by 40% following Iranian strikes on Ras Laffan Industrial City. With the Strait of Hormuz a combat zone and spot prices hitting $25/mmBtu, discover how this impacts India's power and fertilizer sectors.

The rising conflict in West Asia has taken a direct toll on India's energy security. In response to retaliatory strikes by Iran on critical energy infrastructure and maritime choke points, Qatar, the leading exporter of liquefied natural gas (LNG) to the world, has cut its supply to India by a whopping 40%.

Strategic energy assets in the crosshairs: Iran strikes Ras Laffan industrial city in Qatar

This comes on the heels of a sharp escalation of hostilities by Iran against critical American and Israeli assets in the West Asia region. In retaliation for joint operations by the US and Israel in West Asia, Iran unleashed a barrage of drones and missiles at critical American and Israeli assets in the region. 

Iran struck at critical American and Israeli assets in Qatar, which include the Ras Laffan Industrial City and the Mesaieed Industrial City, two of the biggest LNG-producing facilities in the world. The damage to these facilities was so critical that QatarEnergy was forced to suspend operations at these facilities. Iran also struck at American military facilities in Qatari territory.

The impact on India: Industry and households at risk

India ranks among the biggest importers of Qatari LNG, requiring around 27 million tonnes per annum to meet the demand for electricity, fertilizer, and the huge City Gas Distribution (CGD) network.

Petronet LNG Limited, India's major gas import company, has officially informed major marketers like GAIL (India) Limited and Indian Oil Corporation (IOC) regarding the force majeure. Consequently:

Industrial cuts: Gas supply to industries has been reduced by 10% to 40%.

Essential safeguards: At present, marketers are in the process of maintaining the flow rate of CNG (transport) and PNG (domestic cooking gas) to minimize the impact on the general public.

Hormuz stranglehold and the rising costs

The crisis is further compounded by Iran's increasingly tighter control over the Strait of Hormuz. This maritime waterway is of critical importance to India, since it facilitates around 50% of India's oil imports and 54% of its gas imports.

With the shipping lanes in the strait declared a combat zone:

Insurance & freight: The cost of shipping and insurance coverage has gone through the roof.

Spot market volatility: With Indian companies trying to source alternatives to bridge the 40% energy deficit, the cost of energy traded on the spot market has risen to $25 per million British thermal unit (mmBtu), which is twice the cost of the long-term contracts.

Searching for alternatives

While companies like GAIL and IOC are trying to source energy on the spot market to bridge the 40% energy deficit, the cost of energy traded on the spot market is posing a significant fiscal challenge to India. Analysts opine that if the "Operation Shield of Judah" conflict continues to impede the Strait of Hormuz, India will have to resort to energy rationing and experience higher rates of inflation in electricity and food production.

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