by R. Sasankan

Global crude prices topped $ 100 a barrel recently but it is LNG that is proving to be the bigger headache for India's petroleum industry mavens.

Blame it on a volatile cocktail of geopolitical disruption caused by the US-Iran war, a growing dependence on LNG imports, the limited pool of suppliers, and the quirkiness of an imperfect market mechanism that triggers wide disparities in pricing based on shipment destinations.

The Gulf crisis has played havoc with India's natural gas sector, affecting both demand and consumption. The country's natural gas import dependency crossed a key threshold when it touched 50.7 per cent in FY2026 with overall imports totalling around 34.88 billion cubic metres (BCM). LNG imports rose 5% year-on-year by volume and 25% by value to $5.6 billion during April-July, oil ministry data shows. August imports rose 5% over July, according to Kpler.

Domestic gas production meets only 50 percent of demand for natural gas. As demand soars, imports surge. Natural gas supplies travels best through transnational pipelines that stretch from Russian fields to consumers in China, for instance. India does not enjoy that luxury. As a result, it has to rely on imports in the form of liquefied natural gas (LNG). The gas must be cooled into a liquid that occupies 600 times less space, making it easier to ship it across the oceans where pipelines cannot go.

India's problems are accentuated by the fact that it buys approximately 35% to 40% of its liquefied natural gas (LNG) imports from the spot market. This means that it is at the mercy of market intermediaries who rake in the big bucks at the first sign of a crisis. Currently, spot market LNG deliveries are priced at over $23 per million British thermal units (mmBtu).

GAIL India recently paid more than $23 per mmBtu for a cargo scheduled for September delivery. Gujarat State Petroleum Corp (GSPC) paid in the mid-$23 range per mmBtu for a September cargo. The Asian Benchmark (JKM) averaged around $19 per mmBtu between April and August.

The wide variance in LNG prices usually keeps consumers on edge. In the US, the standard FOB price for LNG amounts to 115% of Henry Hub price plus the Liquefaction Toll that averages around $2.50/ MMBTU (the range is $2-3/MMBTU). In June 2026, the FOB price for LNG shipments from the US to Panama was $5.33/MMBTU. However, the price of the same LNG when exported to Europe leapt to an average price of $15.81/MMBTU during the same month. The average Henry Hub Price for Natural Gas was $2.78/MMBTU in August 2026. The mind boggles when one tries to work out how much the scalpers are raking in such a volatile market.

India and key emerging Asian peers spent a combined $7.4 billion on spot LNG following supply disruptions through key shipping lanes like the Strait of Hormuz. Reports suggest that 17% of Qatar's LNG export capacity has been disabled because of the Gulf war; other Gulf nation shipments have also been badly disrupted.

India has an import dependency of 88% in crude oil - and the spike in oil prices has already deepened concerns. But there is one mitigating factor that the Indian government has exploited very well: Russia has emerged as India's biggest crude oil supplier by offering very attractive price discounts. India has opted to run the gauntlet of US sanctions on Russian crude, asserting its sovereign right to ensure its energy security at all costs.

Russia is a big producer of natural gas as well. So why can't India turn to President Vladimir Putin for help again.

I posed this question to a few oil energy experts. Russia holds the largest natural gas reserves on earth. It is the second-largest natural gas producer globally. Russia remains a major pipeline gas exporter, shipping roughly 115 billion cubic metres (bcm) via pipeline in alternative markets like China and Turkey. Russia exports tens of millions of metric tons of liquefied natural gas annually.

But there is a problem. India has been chary of buying Russian LNG shipments because those supplies come from projects targeted by strict U.S. and Western sanctions. Major Russian export facilities such as the Portovaya plant and Arctic LNG 2 are placed under strict Western sanctions due to the war in Ukraine. Indian officials say that they will not touch broad-based sanctioned commodities.

There is one other factor at play. Crude oil shipments can be disguised and confound scrutiny through ship-to-ship transfers at sea. LNG requires specialized transport vessels and terminal infrastructure. These shipments are easy to track via satellite and are impossible to disguise.

The problem with LNG imports has exacerbated as  Asian spot LNG prices have started to flare, jumping to around $26-$30 per million British thermal units (mmBtu) from pre-war levels of close to $10 largely due to the loss of supplies from Qatar and the UAE.

The scary question is this: will the LNG import bill rise once again to the level of $ 17.1 billion as in 2022-23 when it imported 19.9 million metric tonnes? In FY2026, the country forked out only $ 13.4 billion for the 26 MMT of LNG imports.

The Indian economy needs LNG to fuel its growth. A surge in the energy import bill threatens to widen the current account deficit (the gap between money coming into and going out of the country), which can weaken the Indian rupee and make overall imports more expensive.

This is a fraught situation and the authorities will have to wait for hostilities in the Gulf to cool before they can find their way out of the crisis.