Middle East Gas Crisis: Exploring Pipeline Alternatives for India

Global Oil and LNG Market Disruption

The ongoing conflict in the Gulf region has led to a significant disruption in the global oil and LNG markets. The attack by Israel and the US on Iran on February 28 resulted in the assassination of Iran's Supreme Leader and a retaliatory attack on Israel and US bases in the region. The closure of the Hormuz Strait has resulted in a 20% loss of the world's oil supply, while the halt of LNG production by Qatar has led to a 20% loss of global LNG supply.

The oil and LNG markets have transformed from a glut situation to a steep hike in prices. The Brent price spiked to $116 per barrel at one stage, before decreasing to $104.33 per barrel. The Indian crude oil basket remains elevated at $136.56 per barrel, while the spot price of LNG in Asian markets has doubled. There is a 50% increase in the price of gas in Europe.

India's Energy Vulnerability

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India is heavily reliant on the Gulf region for the import of 30% of its crude oil and 25% of its LNG requirements. The country also imports 60% of its LPG consumption from this area. While three Indian-flagged ships have been allowed to sail through the Hormuz Strait, India does not have a blanket understanding with Iran, and clearance must be negotiated on an individual basis.

Disruption to Trade, Shipping, and Insurance

The closure of the Hormuz Strait has led to a significant disruption in trade, shipping, and insurance. Seven out of the twelve biggest companies providing Protection and Indemnity insurance to hull and cargo have stopped issuing war risk coverage in the Persian Gulf, making the situation more serious than the crisis in the Red Sea.

Geopolitical Escalation and War Dynamics

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The Israeli and US attack was preceded by indirect negotiations between Iran and the US on the nuclear issue, along with an unprecedented military build-up by the US. Iran had stated that if it is attacked, it will hit back at Israel and US bases in the region in retaliation. The war aims have expanded beyond rolling back Iranian nuclear program to regime change.

Alternatives and the Path to De-escalation

The alternative for India to depend upon LNG supplies from a troubled region is to consider an undersea pipeline to bring gas from the area. Piped gas is also cheaper than LNG and less exposed to geopolitical tensions.