Gas shortage caused by Iran war may push India back to dirtier fuels

India is experiencing a temporary increase in the use of more polluting energy sources, including coal and kerosene, following disruptions to natural gas supplies. This shift is a direct consequence of recent geopolitical tensions in the Middle East, specifically affecting shipping routes through the Strait of Hormuz.

The waterway is crucial for global energy transit, handling approximately 20% of the world's oil and gas, and a significant portion of India's imported liquefied natural gas (LNG) and liquefied petroleum gas (LPG).

This situation, which commenced on February 28, has prompted the Indian government to implement measures to mitigate the impact on its population. Authorities have authorized an additional 48,000 kilolitres of kerosene for distribution to states, exceeding standard allocations, to support low-income households. Furthermore, the environment ministry has granted a one-month exemption for restaurants and hotels, permitting them to utilize biomass, fuel pellets, kerosene, and coal.

This policy aims to prioritize the allocation of cooking gas for residential use and critical sectors.

Energy Supply Challenges

India, which ranks as the world's second-largest importer of LPG after China, relies on foreign sources for 60% of its total LPG consumption. The current supply squeeze has led to a noticeable increase in the sale of traditional fuels such as firewood and cow dung cakes in various regions across the country. This development underscores the vulnerability of India's energy security to international supply chain disruptions.

Government Response and Policy Adjustments

The federal government's actions reflect an immediate response to safeguard household energy access. By allowing commercial establishments to temporarily revert to alternative fuels, the government seeks to redirect available cooking gas to domestic consumers. This policy adjustment highlights the challenges of balancing energy security with environmental objectives, particularly in a nation with a large population and growing energy demands.

Broader Energy Landscape

While the current reliance on dirtier fuels is anticipated to be temporary, it draws attention to India's broader energy mix. Coal remains the dominant energy source, accounting for nearly 79% of the country's domestic energy supply in the 2023-24 fiscal year. Any short-term reduction in natural gas availability is likely to reinforce this dependence on coal, potentially slowing efforts towards cleaner energy transitions.

Experts have voiced concerns regarding the potential for increased indoor air pollution and associated health risks during this period.

Outlook and Implications

The incident underscores the critical importance of diversified energy sources and robust supply chain management for major energy importers like India. The government's proactive measures aim to cushion the immediate impact on households, but the long-term implications for India's energy transition and environmental goals will depend on the duration and intensity of global supply disruptions.

Continued monitoring of the geopolitical situation and its effects on key shipping lanes will be essential for India's energy planning.

Implications

Country Impact: India faces immediate challenges in maintaining energy access for households, leading to temporary policy shifts towards more polluting fuels. This highlights the nation's vulnerability to global energy supply chain disruptions and could temporarily increase domestic air pollution.

Industry Impact: The energy sector, particularly natural gas and LPG importers, is directly impacted by supply constraints and price volatility. Industries reliant on these fuels may face higher operational costs or temporary operational adjustments, while traditional fuel suppliers see increased demand.

Market Impact: Global energy markets could experience increased volatility, particularly for natural gas and LPG, if Middle East tensions persist. This situation may also influence commodity prices for coal and biomass as demand shifts, potentially affecting energy security perceptions in other importing nations.