The ongoing military conflict between the United States and Israel on one side and Iran on the other, which began on February 28, 2026, has triggered a cascading energy crisis in India with remarkable speed. Iran’s military closure of the Strait of Hormuz — through which approximately 85 percent of India’s LPG imports are routed — has disrupted supply chains, driven up prices, caused queues at gas agencies across multiple states, forced several state governments to convene emergency meetings, and pushed India’s benchmark indices down 1.6 percent in a single session. The domestic LPG price has already increased by sixty rupees per cylinder as of March 7, and Brent crude briefly crossed 120 dollars a barrel before stabilising above 90.
The crisis has exposed a profound structural vulnerability in India’s LPG ecosystem. The Pradhan Mantri Ujjwala Yojana (PMUY), launched in 2016, dramatically expanded LPG access to poor households, adding over ten crore connections between 2017 and 2025. This was a laudable social policy achievement. However, the demand surge driven by PMUY was not accompanied by commensurate investment in strategic LPG reserves, underground cavern storage, or diversification of import sources. India now has only 1.4 lakh tonnes of underground LPG storage — less than two days of national consumption — making it acutely vulnerable to even short supply disruptions.
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Table of Contents
Background and Context
Five Important Key Points
- India imports approximately 60 percent of its LPG requirements, of which 85 to 90 percent is routed through the Strait of Hormuz; Qatar is the single largest supplier at about 34 percent of total imports, followed by the UAE at 26 percent and Kuwait at 8.3 percent.
- The Pradhan Mantri Ujjwala Yojana, launched in 2016, increased active domestic LPG connections from 1,486 lakh in 2015 to 3,305 lakh by July 2025, an increase of over 120 percent in a decade, making India the world’s second largest LPG consumer.
- India’s total underground LPG storage capacity, concentrated at Mangaluru and Visakhapatnam caverns with a combined 1.4 lakh metric tonnes, amounts to less than two days of national daily consumption of approximately 80,000 metric tonnes.
- The Ministry of Petroleum and Natural Gas issued a supply maintenance order on March 8, 2026, directing all domestic refineries and petrochemical complexes to maximise LPG production and direct all output exclusively to the three public sector Oil Marketing Companies — IOCL, HPCL, and BPCL — for domestic household supply.
- The Union Budget 2026–27 had cut the LPG subsidy allocation by 27 percent just weeks before the crisis, reducing it from Rs. 15,121 crore to Rs. 11,085 crore, a decision that has come under sharp political and economic scrutiny given the timing.
Legislative and Policy Background
The Pradhan Mantri Ujjwala Yojana was launched on May 1, 2016, with the aim of providing deposit-free LPG connections to women from Below Poverty Line (BPL) households, freeing them from the health hazard and drudgery of biomass-based cooking using wood, cow dung, and kerosene. The scheme targeted fifty million BPL households in its first phase and subsequently expanded its coverage. By the government’s own claims, LPG coverage has reached nearly 100 percent of Indian households, compared to 62 percent when the scheme was launched.
The scheme was funded through the DBTL (Direct Benefit Transfer for LPG) framework, under which subsidies are transferred directly to consumers’ bank accounts rather than through the price mechanism. This was intended to reduce leakage and improve targeting. The Oil Marketing Companies were directed to supply LPG at below-market prices, with the difference reimbursed by the government. In the year preceding the crisis, the government paid Rs. 30,000 crore to the three OMCs to subsidise their losses from selling cooking gas at below-cost prices during a period of globally elevated oil prices.
The Strategic Reserve Gap: A Governance Failure
The International Energy Agency has repeatedly flagged India’s absence of adequate LPG and natural gas strategic reserves as a critical infrastructural weakness. For crude oil, India maintains strategic reserves in underground caverns at Vishakhapatnam, Mangaluru, and Padur with a combined capacity equivalent to approximately two months of oil imports — a framework that has insulated India from short-term oil price shocks in the past. But for LPG specifically, no comparable framework was built despite the dramatic expansion of demand driven by PMUY.
The geological conditions for underground LPG cavern storage exist across much of India. The Peninsular Shield’s Precambrian gneiss rock formations underlie both operational caverns at Visakhapatnam and Mangaluru. Salt formations in the Bikaner-Barmer belt of Rajasthan offer even cheaper and faster construction options through salt cavern technology, which Germany’s DEEP has been partnering with Engineers India Limited to develop. Depleted gas reservoirs in the Krishna-Godavari, Cambay, and Mumbai offshore basins are also under study. The technical options exist; what has been missing is policy urgency and capital allocation. The Ministry of Petroleum and Natural Gas’s own 2025 demand for grants in Parliament stated that there were no plans at the time to construct additional caverns beyond the two operational ones.
Economic Implications
The ripple effects of the LPG crisis have been rapid and multisectoral. In Khurja, the pottery manufacturing hub in Uttar Pradesh, over 90 percent of ceramic units shut operations within four days of the crisis beginning, as commercial LPG cylinder prices rose from Rs. 67 per kilogram to Rs. 98 per kilogram. In Haryana’s Faridabad, approximately 15,000 MSMEs across automotive, garment, and footwear sectors reported supply disruptions. In Bahadurgarh, 100 footwear units producing over 60 percent of India’s non-leather footwear shut down. The pharmaceutical, textile, and food processing sectors across multiple states reported rising input costs due to petroleum-based packaging material price increases.
The broader macroeconomic impact includes the rupee depreciating past Rs. 92 to the dollar, Nifty falling to 23,866 points, and global Brent crude remaining above 90 dollars a barrel despite the IEA’s decision to release 400 million barrels from strategic reserves in its largest such release ever.
Way Forward
The government must immediately initiate a National LPG Strategic Reserve Programme, targeting a minimum of thirty days of storage capacity by 2030, through both underground cavern construction and above-ground terminal expansion at coastal locations. The PMUY must be redesigned to incorporate demand-side efficiency measures, including the active promotion of induction cooktops as backup and primary cooking devices. The import basket for LPG must be diversified to include long-term contracts with the United States, Australia, and West Africa to reduce dependence on West Asian suppliers. Crisis communication protocols must be formalised at the inter-ministerial level, with a designated spokesperson and regular public briefings to prevent panic and hoarding. The subsidy framework for LPG must be insulated from short-term budget pressures to ensure that domestic price stability is maintained during international supply shocks.
Relevance for UPSC and SSC Examinations
UPSC: GS-II (Government Schemes — PMUY, Social Policy), GS-III (Energy Security, Infrastructure, Indian Economy), Prelims (Current Affairs, Economy)
SSC: General Awareness — Government Schemes, Energy Policy, Economy
Key Terms: Pradhan Mantri Ujjwala Yojana (PMUY), LPG, Oil Marketing Companies (OMCs), Strategic Petroleum Reserves, Strait of Hormuz, Supply Maintenance Order, Direct Benefit Transfer for LPG (DBTL), Underground Cavern Storage, IEA Emergency Reserve Release, Energy Security, Brent Crude