OPINION | Gas shortage after Hormuz squeeze shows energy sourcing autonomy was always conditional

India’s largest LNG receiving facility, carries 77 percent dependence on Hormuz-linked cargo.

Three years ago, India made what looked like a decisive break from the old energy order. As Western governments lined up sanctions against Russia, Indian refiners moved in the opposite direction.

By FY 2023-24, Russian crude accounted for nearly 36 percent of India’s oil imports, up from 2 percent before the Ukraine war. The pivot was real. It lowered India’s import bill, gave domestic refiners a margin advantage, and gave New Delhi room to argue that its energy choices were its own to make.

What the Iran conflict has clarified is that the room was never unconditional.

Oil imports from Russia tracks Washington’s position

Indian refiners pulled back from Russian suppliers when US sanctions tightened in late 2024. They returned when a waiver came through in early 2026. The decisions tracked Washington’s position, not New Delhi’s. The volume moved when Washington permitted it. It stopped when Washington restricted it.

India did not escape geopolitical dependence on energy. It rerouted it; trading exposure to Gulf supply disruptions for exposure to American sanctions policy. That is not autonomy. It is a different arrangement under the same constraint.

The gas crisis revealed reality

For three years, the constraint held loosely enough that the difference did not matter. The Iran conflict has now tested a second layer of that architecture, and this time there is no rerouting available.

India imports roughly half its natural gas requirement as LNG. Around 69 percent of those imports come from Qatar, the UAE, and Oman, with shipments moving through or near the Strait of Hormuz. Qatar alone supplied close to 40 percent of India’s total LNG in 2025. On March 3, after Iranian strikes hit the Ras Laffan industrial complex, Petronet LNG issued force majeure notices to QatarEnergy and its downstream customers:

GAIL, Indian Oil Corporation, and BPCL.

By March 4, GAIL’s LNG allocation under its Petronet contract had been reduced to zero. Spot LNG prices on the Platts JKM benchmark moved from around $10 per MMBtu to approximately $25 per MMBtu within days. Petronet LNG’s Dahej terminal, India’s largest LNG receiving facility, carries 77 percent dependence on Hormuz-linked cargo.

Without a supply buffer, distribution chain is vulnerable

On crude, India had built something that resembled a buffer. The Russia trade gave Indian refiners a discount route that bypassed Hormuz. West African and US supplies added further diversification. Strategic petroleum reserves offered short-term cushion.

None of these conditions exist on the gas side.

There is no Russian equivalent for LNG, no bilateral arrangement that replaces Qatari contracted volumes at scale, no domestic surplus to draw from.

Rationing hasn’t yet addressed the fiscal cost

The government has issued emergency allocation orders under the Essential Commodities Act, prioritising household PNG, CNG for transport, and LPG feedstock at 100 percent of their six-month consumption average. Fertiliser plants have been allocated 70 percent. That 30 percent gap is not a managed buffer. It is the entry point for a cost that has to land somewhere.

The fiscal consequence follows directly and has not yet been named publicly.

Questions over fertiliser subsidy

Natural gas is the primary feedstock for urea, which accounts for the largest portion of India’s fertiliser subsidy bill. Farmers pay Rs 242 per 45 kg bag; a price that has not moved since March 2018. The difference between that price and the actual cost of producing or importing urea is carried by the government as subsidy.

When LNG input costs double and fertiliser plant gas allocation is cut to 70 percent of normal, the gap is covered either by reducing production which tightens urea availability and raises import requirements or by sourcing the remaining input from spot LNG at $25 per MMBtu. In either case, the subsidy bill rises.

Budget estimates are likely to take a hit

Budget 2026-27 allocated Rs 1,70,799 crore for fertiliser subsidies, an 8.4 percent reduction from the FY26 revised estimate of Rs 1,86,460 crore. That cut was deliberate. It was built into the government’s path to a 4.3 percent fiscal deficit target for FY27 — part of a consolidation plan that assumed the elevated subsidy outflows of the past two years were a temporary response to post-pandemic input price pressures, not a structural baseline.

The FY26 numbers should have raised a flag. The fertiliser subsidy overran its budgeted estimate by 11 percent, without a Hormuz disruption and without LNG at $25 per MMBtu. The food subsidy overran by 12 percent. Both lines came in above target in a year that was, by comparison, relatively stable. The FY27 budget was constructed on the assumption that this pattern would reverse. That assumption has not survived March.

The government now faces a choice it has not publicly acknowledged. Hold the 4.3 percent deficit target and absorb the input cost pressure through cuts elsewhere, higher market borrowing, or a drawdown on capital expenditure. Or expand the fertiliser subsidy buffer and revise the fiscal target. There is no arithmetic in which both commitments survive a sustained LNG price shock through Q1 FY27.

A partial playbook to manage shocks

Bond markets and rating agencies currently pricing India’s fiscal trajectory are working off the February 1 budget baseline. The Finance Ministry’s Monthly Economic Review of March 6 acknowledges elevated energy price risks to the balance of payments. It does not specify what the LNG shock means for the fertiliser subsidy line, or what that means for the consolidation path that both the RBI’s rate arithmetic and sovereign credit assessments are currently built around.

The crude oil story running across every financial headline this week is real. But it describes a shock that India has a partial playbook to manage. The gas story is structurally different. It leads to a budget built on assumptions the conflict has already broken, and a government that has not yet said so. The cost of conditional autonomy is not abstract. It is sitting in the FY27 subsidy arithmetic, waiting to be counted.

(Sagari Gupta is a journalist.)

Views are personal and do not represent the stand of this publication.