LPG Price Hike: The impact of the ongoing war between Iran and Israel can now reach your kitchen directly. In the coming time, the prices of LPG cylinders in the country may increase. The increasing tension in the Middle East can be directly seen in the prices of cylinders because 2 out of every 3 LPG cylinders in the country come from West Asia. According to media reports, US attacks on Iran’s nuclear sites have increased the fear of supply stopping from the world’s largest oil-producing region, West Asia.
In the last 10 years, the use of LPG in India has more than doubled, now LPG has reached 33 crore homes. This was possible due to the government’s schemes, which promoted LPG. But this has also increased India’s import dependence. About 66% of LPG comes from abroad, and 95% of it comes from West Asian countries like Saudi Arabia, UAE, and Qatar. According to the data of the Petroleum Ministry, India has LPG storage for only 16 days of consumption, which is in import terminals, refineries, and bottling plants.
Why is there a fear of an increase in LPG cylinder prices
The increasing import dependence on LPG and geopolitical tension in the Middle East is a direct matter of concern for Indian consumers.
Supply chain weaknesses
When 66% of LPG comes from abroad and 95% of that comes from just a few countries in West Asia, any major tension in the region has a direct impact on India’s supply chain. War or sanctions can disrupt shipping, which can delay or increase the cost of LPG reaching India.
Low stocks
India has a stock of only 16 days of LPG consumption. This is a very short period. If there is a major and unexpected disruption in supply, it can quickly create a crisis and lead to domestic shortages and sharp price hikes.
Why is there no impact on petrol and diesel
However, India is in a much better position in terms of petrol and diesel.
Exporting country
India is a net exporter of both. That is, we export 40% of the petrol we produce and 30% of diesel. If needed, this export quantity can be diverted to the domestic market, which will maintain internal supply.
Adequate crude oil reserves
There is a 25-day stock of crude oil in refineries, pipelines, ships, and the National Strategic Petroleum Reserve (SPR). This is much better than the 16-day stock of LPG.
No panic buying
Amid the Israel-Iran tension, refiners have not done panic buying, as they feel that the risk of supply disruption is low. This reflects a mature market response, where alternative sources and strategies for supply are available.
Need to be cautious
An executive was quoted as saying, “Even if you order now, the delivery will come only next month or so. We also have less capacity to store extra. When the risk of disruption is low, it makes no sense to buy too much and lock up money.” This comment emphasizes that unnecessary panic buying in large quantities can lead to artificial scarcity in the market and an increase in prices. However, it is important to be cautious to protect domestic consumers.
The rise in oil prices may impact the margins of refiners in the short term, but there is no expectation of a change in retail prices of petrol and diesel. State-run oil marketing companies have been keeping pump prices stable for the last 3 years and will continue to do so despite fluctuations in the global market. This shows that the government is committed to keeping domestic fuel prices under control even if there are fluctuations in the international market.