The government is in talks with the US regarding US President Donald Trump’s proposal to provide political risk insurance and guarantees to merchant vessels, particularly energy cargoes, transiting the Strait of Hormuz where vessel traffic has come to a standstill amid the ongoing conflict in West Asia, a senior government official said Thursday. Cargo movement through the Strait of Hormuz—a critical chokepoint for global energy flows—effectively came to a halt after Iran warned of attacks on ships, with most insurers and vessels loath to get involved in the prevailing extremely high-risk environment.
A bulk of India’s oil and gas supplies pass through the Strait of Hormuz—the narrow waterway between Iran and Oman that connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. In recent months, roughly 2.5–2.7 million barrels per day (bpd) of India’s crude imports—accounting for around half of the country’s total oil imports—have transited the Strait, mainly from Iraq, Saudi Arabia, the UAE, and Kuwait; the longer-term average is around 40%. India is the world’s third-largest consumer of crude oil with an import dependency level of over 88%.
The country depends on liquefied natural gas (LNG) to meet roughly half of its natural gas needs, and around half of India’s LNG imports come through Hormuz. As for LPG, the bulk of India’s demand is met through imports, and over 80% of these volumes come via the narrow waterway. In all, approximately one-fifth of global liquid petroleum consumption and global LNG trade flows through the waterway.
“We are trying to understand the American proposal…it would require them to have a corpus of several hundred million dollars to make such a plan work. But the good thing is that people are talking to each other on this issue,” said a senior government official, who did not wish to be identified.
“Effective IMMEDIATELY, I have ordered the United States Development Finance Corporation (DFC) to provide, at a very reasonable price, political risk insurance and guarantees for the Financial Security of ALL Maritime Trade, especially Energy, traveling through the Gulf. This will be available to all Shipping Lines. If necessary, the United States Navy will begin escorting tankers through the Strait of Hormuz, as soon as possible. No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD. The United States’ ECONOMIC and MILITARY MIGHT is the GREATEST ON EARTH — More actions to come,” Trump recently posted on Truth Social.
Following Trump’s announcement, the DFC said that it was ready to mobilise its political risk insurance and guarantee products to “stabilize international commerce and support American and allied businesses operating in the Middle East during this period of conflict with the Iranian regime”. In a press release, the DFC said, “Acting under the strategic guidance of President Trump and Secretary (Scott) Bessent, DFC is closely monitoring how certain sectors—maritime trade and energy in particular—are being impacted by the current conflict in the Middle East and the Iranian regime’s actions. DFC will offer support to commercial shipping charterers, shipowners, and key maritime insurance providers to minimise market disruptions and help ensure the free flow of goods and capital.”
According to sources in the know, the government and Indian oil and gas companies are in touch with all international suppliers, including national oil companies and even large traders like Vitol, Trafigura, and ADNOC Trading, to source additional volumes of crude oil and LPG from their international portfolios in view of the West Asia conflict, even as the country is in a “comfortable” position to prevent any near-term supply shortage when it comes to major fuels like petrol, diesel, and LPG. They assured that India is in a comfortable position with regard to oil and fuel stocks, and there was no need at present to ration fuels. They also ruled out any increase in retail fuel prices for the time being.
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While India is currently estimated to have crude oil and fuel stocks for at least six to eight weeks, the country’s cushion is thinner when it comes to LNG as additional LNG stockpiling is significantly more challenging than crude oil and petroleum fuels. India, the world’s fourth-largest LNG importer, is actively scouting for additional LNG cargoes from other source markets. Some concern is already visible in the natural gas sector due to the West Asia conflict. India’s largest LNG importer Petronet LNG has issued force majeure notices to its key supplier QatarEnergy, and its off-takers in India. Moreover, QatarEnergy has also issued a notice indicating a potential force majeure due to the conflict, which has forced the LNG producer to halt production.
Natural gas supplies to some sectors in India have already been reduced in the anticipation of tighter LNG deliveries. Government sources indicated that if the situation worsens, reprioritisation of sectoral gas allocation may be undertaken to ensure that the critical sectors don’t suffer for want of fuel. Some sectors can also switch to alternative fuels, they said. Domestic natural gas is allocated to various sectors—like city gas distribution, fertilisers, and power—based on a priority list.
Petronet LNG has long-term contracts to buy 8.5 million tonnes per annum (mtpa) of Qatari LNG. It also buys additional LNG volumes from Qatar from the spot market. Other Indian oil and gas companies also buy LNG from the UAE. In all, India imports around 27 mtpa of LNG from various geographies. According to sources, India consumes around 195 million standard cubic metres per day (mscmd) of natural gas, half of which comes in the form of imported LNG, and 60 mscmd is currently not available due to the closure of the Strait of Hormuz and the force majeures in place.