India’s Gas Demand Drops as Iran War Hikes LNG Spot Prices

India’s gas demand moved sharply lower after the Iran war disrupted LNG supplies from the Middle East. Wood Mackenzie estimates that India has lost 1.5 million tons of demand so far this year. The decline shows how a supply shock can reduce fuel use, not merely raise prices.

The main mechanism was tighter LNG availability. Much of Qatar’s and the UAE’s supply became trapped in the Persian Gulf because shipments could not bypass the Strait of Hormuz. Asian spot prices then climbed, making gas more expensive and destroying some demand across South Asia.

India was partly protected by suppliers including the United States, Nigeria, and Oman, alongside Qatar and the UAE. Its tender prices reached $26.4 per MMBtu by September, but tendering demand stayed robust. Wood Mackenzie now expects South Asian demand to fall about 6 million tons, reversing its earlier growth forecast.

Liquefied natural gas, or LNG, is natural gas cooled to an extremely low temperature until it becomes liquid. This greatly reduces its volume, allowing it to be loaded onto ships and moved between countries. At the destination, it is warmed back into gas for pipelines, power plants, factories, and other users.

India imports LNG because its gas needs are not met entirely by domestic production, and seaborne cargoes provide access to international suppliers. The article identifies the United States, Nigeria, Oman, Qatar, and the UAE as part of India’s supplier base. This diversity helped India cope better than Pakistan and Bangladesh.

The disruption showed both LNG’s value and vulnerability. When Middle Eastern cargoes could not move normally, Asian spot prices rose sharply. India’s tender prices reached $26.4 per MMBtu by September, yet tendering demand remained robust, while overall Indian demand still fell by 1.5 million tons.

Wood Mackenzie’s forecast changed dramatically after the war disrupted Middle Eastern LNG supplies. Before the conflict, analysts expected South Asian LNG demand to rise 7% from 2025, equal to an additional 2.7 million tons. After the disruption, they projected demand would fall by about 6 million tons instead.

India accounted for roughly 1.5 million tons of the decline so far this year. Bangladesh suffered a larger reduction of 3 million tons, while Pakistan also lost about 1.5 million tons. Higher spot prices made LNG more expensive and destroyed some demand across the region.

The scale matters because the change is not simply slower growth. It represents a swing of roughly 8.7 million tons from the expected increase to the projected decline. India’s diversified suppliers softened the impact, but its demand still dropped and its tender prices reached $26.4 per MMBtu by September.

LNG spot prices rose because the war disrupted a major source of supply reaching Asian buyers. Most LNG from Qatar and the UAE was trapped in the Persian Gulf, with no route to bypass the Strait of Hormuz. That sharply reduced available cargoes even as buyers still needed gas.

The key mechanism was a supply squeeze. When fewer cargoes are available, buyers compete more intensely for each shipment. Pakistan planned to buy 10 cargoes on the spot market, helping push Asian spot prices to three-year highs. These cargoes cost about twice the price of Pakistan’s Qatari imports.

Higher prices then damaged demand. Wood Mackenzie says Bangladesh lost 3 million tons of demand, while India and Pakistan each lost about 1.5 million tons. Pakistan may spend more than $1 billion securing winter supply. India’s tender prices reached $26.4 per MMBtu by September.

The Strait of Hormuz is a narrow maritime passage between the Persian Gulf and the Gulf of Oman, connecting the Gulf with wider international waters. It is a vital route for ships carrying energy from Gulf producers to overseas buyers. This geographic bottleneck makes disruptions especially consequential.

Qatar and the UAE supply LNG from facilities inside or near the Persian Gulf. According to the article, the war trapped most of their LNG there because shipments had no route to bypass the strait. Fewer cargoes could reach Asian markets, even though buyers still needed gas.

That restriction created a supply squeeze. Asian spot LNG prices rose to three-year highs, and demand fell as gas became too expensive. Pakistan planned 10 spot purchases at roughly twice its Qatari import price, while India’s tender prices reached $26.4 per MMBtu by September.

Pakistan and Bangladesh were hit harder because their LNG procurement was less diversified. When Middle Eastern supply was disrupted, they had fewer alternative sources to replace missing cargoes. Their exposure turned a regional shipping crisis into a sharper shortage and demand shock.

Bangladesh lost 3 million tons of gas demand, according to Wood Mackenzie. Pakistan lost about 1.5 million tons and faced an especially costly winter. It planned to import 10 LNG cargoes from the spot market, where prices were about twice the rate of its Qatari imports.

Pakistan may need to pay more than $1 billion to secure winter supply as spot prices soar. India fared relatively better because it also buys from the United States, Nigeria, and Oman. Even so, India’s demand fell by 1.5 million tons, showing that diversification reduced the damage rather than eliminating it.

Natural gas is produced from underground reservoirs through wells. It is processed to remove unwanted substances, then cooled to about minus 162°C so it becomes LNG and takes up far less space. Specialized ships carry it overseas. Import terminals warm it back into gas before sending it through pipelines.

International LNG is sold through long-term contracts, spot trades, or a mix of both. Contract prices can provide more stability, while spot prices change with immediate supply and demand. Shipping routes and chokepoints also matter. If cargoes cannot reach buyers, available supply shrinks and prices rise.

The article provides a clear example. The war trapped most Qatari and UAE LNG in the Persian Gulf, while Asian spot prices reached three-year highs. Pakistan planned spot purchases at about twice its Qatari price. India’s diversified suppliers helped, but its tender price still reached $26.4 per MMBtu.