The fact, however, is that this move has too many implications. The geo-political factor in this exercise cannot be missed for sure. It represents close to ten per cent of the country’s annual LPG imports and marks the first structured US LPG contract for the Indian market. The Middle East has all along been the go-to place. Close to 90 per cent of the country’s LPG requirements are sourced from here. The reasons are not far to seek. The refinery-grade LPG from the Middle East, it is claimed, is butane-heavy and suitable for a tropical climate like India. The freight cost is another advantage too. Cost competitiveness and product-fit together, sort of, pushed New Delhi to go out to the Middle East for its LPG requirements. After all, over 60 per cent of the Indian households reportedly use LPG as their primary choice.
The USA produces LPG from natural gas and so it has more propane content, which is not suitable for the Indian conditions. If so, why go in for LPG from the USA? It isn’t difficult to give a simple answer! Well, the Donald Trump-orchestrated tariff war has turned the world upside down. His anger against Beijing reflected by his unilateral action of levying hefty tariffs on China, has not only reset the global trading order but forced many nation-states to quickly reconfigure their relationships in a reactionary mode. Beijing countered Trump’s tariff tantrums by slashing its LPG imports from the USA. Predictably, this trade war has found reflection in the in the USA. New Delhi appears to have used this LPG price situation to cobble together a contract with the USA producers. For one, this helps India to diversify its LPG supply source. For another, it should help douse Donald Trump’s anger against India.
Reading against this backdrop, the geo-political interpretation of the LPG deal with the USA firms is not entirely off the mark. Also, the LPG import move should be read in the context of the ever escalating tension between Israel and Iran around the Strait of Hormuz. This has the potential to keep pushing up the cost. For one, it could drive up the freight cost. For another, it could force the insurers to hike the risk premium. Taking a holistic view of the evolving global situation and reading it in tandem with the tariff tantrum unleashed by Trump, the move to import LPG from the USA appears to be a thoughtfully calibrated exercise.
