₹700 a cylinder, absorbed upstream: how India held LPG prices through the Hormuz shock

A Petroleum Ministry note explains why Indian households still pay among the world's lowest cooking-gas prices — the Saudi benchmark jumped ~46% after the Strait of Hormuz closed, but the under-recovery was carried by the exchequer, not the consumer.

What happened

• The Ministry of Petroleum & Natural Gas explained why Indian households continue to pay among the lowest cooking-gas prices in the world, even after a sharp West Asia supply shock.
• After the Strait of Hormuz closed in late February 2026, the Saudi Contract Price (CP) for LPG — the benchmark India's import cost tracks — rose from about US$543/tonne (February) to ~US$790/tonne (June), a rise of about 46%. The import-linked cost of a 14.2 kg cylinder crossed ₹1,600.
• That cost was not passed through: a PMUY beneficiary pays an effective ₹642 and the general consumer ₹942 in Delhi, leaving an under-recovery of about ₹700 per cylinder absorbed by public-sector oil marketing companies (OMCs) and the exchequer.
• The note stresses the under-recovery is separate from the subsidy: the under-recovery (gap between international cost and regulated price) reached a cumulative ~₹60,000 cr on domestic LPG (up from ₹41,338 cr), against which the Union Cabinet approved ₹30,000 cr compensation to OMCs; the PMUY ₹300/cylinder DBT on the first four refills is over and above this, reaching 10.58 crore connections.
• Supply was kept moving: about 54% of India's LPG routed through the Strait, yet Indian-flagged tankers continued to transit and discharge, with no shortage of any petroleum product.
• Measures during the disruption: domestic LPG production raised >60% (~32 to ~52 TMT), sourcing widened to the US, Canada and Algeria, a push to piped natural gas (PNG), and OTP-based delivery verification raised to ~90% to curb diversion of subsidised cylinders.

For Prelims

• PMUY: the Pradhan Mantri Ujjwala Yojana (launched 2016, Ministry of Petroleum & Natural Gas) provides free LPG connections to women of poor households; beneficiaries get a ₹300/cylinder DBT on the first four refills — now 10.58 crore connections.
• Saudi CP: the Saudi Contract Price set by Saudi Aramco at the start of each month is the global benchmark for LPG; India prices imports off the 50:50 propane-butane blend. Recall LPG = a propane/butane mix.
• Under-recovery vs subsidy: an under-recovery is the gap between the cost of the molecule and the regulated retail price (borne by OMCs/exchequer); a subsidy (the ₹300 DBT) is a direct transfer. The release explicitly separates the two — a high-yield distinction.
• Strait of Hormuz: a chokepoint between the Persian Gulf and the Gulf of Oman (Iran to the north, Oman/UAE to the south) through which roughly a fifth of the world's oil moves; ~54% of India's LPG was routed through it — a classic energy-security chokepoint (with Bab-el-Mandeb and the Malacca Strait).
• OMCs: public-sector Oil Marketing Companies (IOCL, BPCL, HPCL) absorb under-recoveries on regulated fuels; the Cabinet approving compensation is the fiscal route to make them whole.
• DBT: the ₹300 reaches bank accounts via Direct Benefit Transfer, built on the JAM trinity (Jan Dhan–Aadhaar–Mobile) — the plumbing behind targeted LPG support and the earlier 'PAHAL/Give It Up' reforms.
• Energy import dependence: India imported ~60% of its LPG; the episode shows why diversified sourcing, strategic stocks and domestic output matter for energy security.
• Don't overstate: holding the retail price is a price-modulation / fiscal-absorption measure — it does NOT mean global prices fell; the cost was carried upstream, with real fiscal implications.

For Mains

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