India’s Modi reaches out to Iran as energy crisis fears grip South Asian nation

Indian Prime Minister Narendra Modi called Iranian President Masoud Pezeshkian just hours after Tehran’s new supreme leader vowed to keep the Strait of Hormuz closed as New Delhi struggles to mitigate energy supply risks.

That was Modi’s first call to Iran since the war broke out, as the world’s third-largest oil importer and second-largest consumer of liquefied petroleum gas grapples with rising energy costs and panic buying amid tight supplies due to the closure of the critical waterway.

India has relied on supplies from the Strait of Hormuz to meet about 50% of its crude oil needs, according to Citi, while importing most of its LPG (the main cooking fuel used by commercial establishments and households) through this route.

“The security of Indian citizens, along with the need for unimpeded transit of goods and energy, remain India’s top priorities,” Modi said in a post on X, sharing details of his conversation with Iran’s leaders.

Although gasoline pumps have “adequate stocks,” there is panic buying of LPG, which is leading to supply constraints, government officials said at a news conference on Thursday.

The government has even ordered pollution control boards to allow the use of fuels such as kerosene, biomass and coal by the hospitality sector, as the world’s most populous country prioritizes supplying LPG to homes.

Nearly 330 million households and over 3 million businesses in India use LPG cylinders. Many restaurants are closing or have reduced their menu due to a shortage of LPG cylinders available for commercial use, according to a statement from the National Restaurant Association of India shared with CNBC.

“India needs more oil and gas,” Nikhil Bhandari of Goldman Sachs said on CNBC’s “Squawk Box Asia,” adding that the country relies heavily on supplies from the Strait of Hormuz and has a “much smaller” inventory buffer than other North Asian markets.

Citi estimates an “upside risk” of 50 basis points to 75 basis points for its Indian consumer inflation forecast of 4% for the financial year ending March 2027.

The brokerage said in a note on Thursday that if oil prices remain between $90 and $100 per barrel, fuel prices could rise by Rs 5-10 per liter, which alone can cause a hit of up to 50 basis points on consumer inflation.

Meanwhile, global brokerage Nomura raised India’s consumer inflation forecast to 4.5% from 3.8% for the financial year ending March 2027, saying the commercial LPG crisis risks pushing up prices charged by restaurants.

India faces rising energy costs and shortages, which could lead to “multiple sources of inflationary pressure” if disruptions to supply chains last more than a month, Nomura said in its Thursday note.

While the government is prioritizing supply to consumers, restrictions imposed after the outbreak of war have also restricted household access. Urban consumers will have to wait 25 days between LPG bookings, up from 21 days previously, while households in rural areas will have to wait 45 days.

Amid supply constraints, the government has already increased the price of cooking fuel by Rs 60 per cylinder or about 6.5% for most consumers, but experts warn that ongoing election campaigns in five key states will limit the government’s ability to pass on the cost of rising fuel prices to consumers.

Meanwhile, the rupee has been hovering around record lows, hitting 92.48 against the US dollar on Friday, as traders factor in the risk of oil prices staying high for longer.

If oil prices rise above $100 a barrel and average, India’s current account gap could widen by 70 basis points, Radhika Rao, senior economist and chief executive officer at DBS Bank Singapore, told CNBC.

India’s current account deficit was 1.3% of its GDP at the end of December 2025, but if the gap widens due to pressure from rising oil prices, it will lead to a depreciation of the currency.

Data from energy intelligence firm Kpler shows there were at least 130 million barrels of oil stranded in the Middle East Gulf as of Thursday, but India has been unable to access that as Iran has blocked trade through the Strait of Hormuz..

The country has been seeking safe passage for its ships, 28 of which, with nearly 800 Indian sailors, are stranded in the strait. Indian External Affairs Minister S. Jaishankar has held several talks with his Iranian counterpart, Seyed Abbas Araghchi, in recent days, according to the country’s Ministry of External Affairs.

“The last (meeting) discussed issues related to (the) security of India’s shipping and energy security,” a ministry spokesperson said, adding that sharing anything beyond this would be “premature”, indicating that Indian vessels are unlikely to get respite from the blockade.

“If Hormuz remains closed beyond the near term, India will be forced into a structural reconfiguration for which it was never fully prepared, with a price premium it may not be able to afford,” said Reema Bhattacharya, head of Asia risk analysis, corporate risk and sustainability at business advisory firm Verisk Maplecroft.

India now sources crude oil from more than 40 countries, with purchases from Russia reaching 1.46 million barrels per day in March, compared with 1 million barrels in February, according to Kpler data.

Muyu Xu, a senior analyst at the firm, said market rumors indicate that India has recently purchased Russian Urals for March and April delivery at a premium of $5 per barrel to Brent Dated.

India cannot “realistically rewire” its power supply chains in a month or two, due to global constraints and higher costs, Bhattacharya said.