From Fuel Shock to Supply Chain Strain: How the Strait of Hormuz Crisis Is Rippling Across Indian Industry

By Avica Kumar

NEW DELHI, May 5: India's energy security and industrial stability are coming under increasing strain as tensions around Iran continue to disrupt critical oil and gas supply routes. The fallout is no longer confined to global markets. Indian industries are now confronting escalating operational and financial risks, with cascading midstream and downstream impacts.

The crisis is hitting Indian industry through three key supply channels. The first is crude oil disruption: any restriction in the Strait of Hormuz constrains refinery feedstock, triggering ripple effects across six major downstream products, namely diesel, LPG, aviation turbine fuel (ATF), naphtha, fuel oil, and gas.

The second is refined product disruption, which can emerge even without a complete supply halt, driven by refinery reconfiguration timelines and distribution bottlenecks.

The third is LPG and LNG exposure. India imports nearly 90% of its LPG from Gulf nations, while LNG from Qatar directly supports city gas networks and industrial operations. Shifting to alternative sources requires capital-intensive adjustments and long lead times.

The severity of impact varies across sectors based on three factors: ability to absorb cost shocks, capacity to pass on costs, and availability of substitutes. Within each sector, the divide between large corporations and SMEs is especially stark.

Transportation and logistics are among the hardest hit. Diesel accounts for 35–45% of road freight costs, while ATF makes up about 40% of airline expenses. Large operators such as IndiGo and Transport Corporation of India can invoke fuel surcharge clauses to pass costs downstream. IndiGo has already introduced surcharges ranging from ₹425 to ₹2,300 per flight.

In contrast, SME truckers operating on spot rates lack such buffers, leaving them exposed to severe margin compression. Short-term alternatives are limited: rail transitions take months, while shifts to CNG or electric fleets require years, and aviation has no viable substitute for ATF.

Domestic energy presents another critical vulnerability. Over 300 million households rely on LPG under schemes like Pradhan Mantri Ujjwala Yojana, while piped natural gas (PNG) infrastructure remains limited to a handful of cities.

The government may be forced to absorb rising costs to avoid political fallout, even as oil marketing companies face under-recoveries. Large hospitality players can adapt through dual-fuel systems, but small businesses and rural households have limited options. Biomass remains a fallback, though regressive, while many may turn to induction cooking amid supply uncertainty.

Chemicals, fertilisers, and agriculture face a dual shock. Diesel powers farm operations, while gas and naphtha are essential for urea and petrochemical production. Pricing constraints worsen the situation. Urea prices are government-controlled, and crop prices are tied to MSPs, leaving little room for cost pass-through.

Major players like Indian Farmers Fertiliser Cooperative Limited can rely on long-term gas contracts through GAIL, but smaller agrochemical firms and marginal farmers, often purchasing inputs on seasonal cycles, face rapid margin erosion.

Core industries such as power, steel, cement, and glass encounter similar pressures. Large firms can fall back on coal-based capacity, but SME foundries and captive power users remain directly exposed to gas price spikes with limited substitution options.

Petrochemical-dependent sectors including tyres, paints, and plastics face rising input costs, though established brands typically retain enough pricing power to pass on increases over time.

Indirectly affected sectors such as FMCG, pharmaceuticals, automobiles, and construction are exposed through higher freight and packaging costs but retain greater flexibility. Packaging materials can shift from plastic to glass or paper, and sourcing can gradually diversify away from Gulf supply chains.

Large companies should urgently assess energy costs as a share of cost of goods sold, stress-test operations across crude price scenarios of $100–120 and $130-plus, and review contractual safeguards such as fuel surcharge clauses. Building six to eight weeks of critical inventory and identifying vulnerable SME suppliers are equally important steps.

For SMEs, immediate priorities include calculating fuel expenses as a share of revenue using a 30% threshold to gauge risk, securing credit lines early, and negotiating at least one contract with a fuel surcharge clause. Engaging industry bodies like FICCI and CII can also help push for policy relief and financial support.

Even in its current partial form, the Strait of Hormuz crisis is no distant threat. India's deep dependence on this corridor creates a cascading risk structure, compressing the window for effective response. Businesses that act early, securing contracts, building inventory buffers, and diversifying supply, will be far better positioned than those waiting for stability to return.

India Energy Lifeline at Risk as Strait of Hormuz Crisis Deepens

By Avica Kumar

NEW DELHI: India’s energy security and industrial stability are facing mounting pressure as tensions surrounding Iran continue to disrupt critical oil supply routes, pushing global crude prices to their highest levels since 2022. With the United States signaling that its naval blockade on Iran could persist for months, the strategic Strait of Hormuz, a vital artery for global energy trade, remains severely constrained. Indian oil tankers are among the many vessels unable to pass freely, intensifying concerns over supply continuity....more