How the Middle East tensions could affect India’s energy supplies

West Asia conflict: How the Middle East tensions could affect India’s energy supplies

• India's energy supplies at risk due to West Asia tensions
• India has 25 days of crude oil and refined product reserves
• LNG supply disrupted as Qatar halts production at Ras Laffan

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The escalating tensions in West Asia has put India’s energy supplies at risk with as much as 50% of its oil supplies and 85% of LPG flows under potential disruption if the conflict intensifies.

With the movement of ships through the Strait of Hormuz, which carries about 20 percent of the world's crude and nearly half of India’s oil imports, coming to a standstill amid Iran’s retaliatory strikes across West Asia, Indian companies are exploring alternative supply routes and regions to secure the country’s energy demands.

While the Indian government is “cautiously optimistic” that phased measures can be taken, if required, to mitigate the situation, a recent halt of LNG production at Qatar’s Ras Laffan hub has exposed India’s gas supply chain to potential disruption.

How much domestic oil reserves does India have?

India is comfortably positioned with 25 days of crude oil including oil stored in refiner’s storage tanks, pipelines, and in transit, according to government sources. Sources said that the stocks will be replenished constantly as India continues its purchases of oil from non-Hormuz regions. The country has strategic petroleum reserves which presently hold crude reserves worth another week or so of its daily consumption of 5.6 million bpd.

Additionally, the country has a 25 days stock of refined oil products including petrol, diesel, and liquified petroleum gas which will continue to shift as refiners continue to process crude and export these products.

Government sources also said that India has started scouting for alternative options before the military conflict and there is no need for panic buying while clarifying that that there are no discussions of diversion of oil from industrial use.

India’s LNG supplies and potential disruption

India’s liquefied natural gas (LNG) supply chain is facing disruption after Qatar, its single-largest supplier, declared force majeure on deliveries following a halt in production at its Ras Laffan facility.

Parallelly, India’s largest LNG terminal operator, Petronet LNG, has also invoked  force majeure for its affected tankers after insurers pulled out of key Middle East routes leading to choking of supplies in the Strait of Hormuz.

India faces the immediate risk of losing LNG supply as it imports 45% of its LNG from Qatar, data and analytics firm Vortexa noted.

Government officials noted that energy companies have had to invoke contractual provisions due to the situation in the region. “Petronet LNG and Gail India had no other option but to declare force majeure (amid the escalating West Asia conflict). It is legally required to declare force majeure in a state of war. We are in touch with all the entities.”

Government officials also said that if gas supply tightens, the country can look at several options including reprioritisation of gas allocation among various industrial sectors as alternate fuels are available. “Any deficit (in gas supply) is managed in a manner that no one is at inconvenience,” official sources said.

What did the government say?

An official statement from the oil ministry said that Indian energy companies now have access to energy supplies that are not routed through the Strait of Hormuz. “Such cargoes will remain available and help mitigate supplies that may be temporarily affected enroute through the Strait of Hormuz,” the ministry said.

The ministry also said the country is well stocked with crude oil and inventories of key petroleum products including petrol, diesel and ATF to deal with short-term disruptions arising from the Middle East.

The oil ministry has established a 24×7 Control Room to continuously monitor the supply and stock position of petroleum products across the country.

Alternative routes for energy supplies

Besides the Strait of Hormuz, the Red Sea route via the Suez Canal is another critical shipping lane in the Middle East, extensively used for global merchandise and crude oil trade connecting Asia with Europe, North America and North Africa.

Although trade through the Suez Canal has declined significantly over the past 15-18 months following the Houthi rebel attacks, it remains substantial, Crisil Ratings said. The agency added that any major disruption to this shipping route, as a potential domino effect of the conflict, could further impact crude oil prices and shipping time and cost and will warrant close monitoring.

According to official sources, India is coordinating with a wide range of global suppliers and trading houses to secure energy supplies. “India is in touch with all major suppliers, companies for their international portfolios and trading entities like Trafigura, Vitol for LPG and crude oil," sources said.