Gold to LPG: How the Middle East Conflict is Impacting India
India continues to be impacted by the consequences of the rising tension in the Middle East. A large portion of the nation's energy imports are at risk of being disrupted, and the aviation industry is facing increased expenses due to limitations on airspace. The resulting crisis has already caused disturbances in shipping routes, causing an increase in oil prices and sparking concerns about negative effects on the global economy.
India is particularly vulnerable due to its significant dependency on the crucial energy route of the Strait of Hormuz. In the event of conflict affecting the corridor, India could experience not only increased fuel costs but also uncertainty in supply, more expensive imports, and a strain on industrial demands.
Gold Prices Shines Bright Amid Conflict Concerns
Gold prices are soaring to all-time highs due to Iran's active role in the growing tensions between Israel and Lebanon. Concerns about the conflict spreading and turning into a bigger regional war have increased uncertainty, leading investors to flock to gold as a safe investment during times of instability.
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Suez Canal Disruptions Push Export Costs Higher
At the same time, the commerce department and exporters are cautious about how the tensions could affect India's exports to the Middle East, as well as the rise in freight and logistic expenses. Major shipping routes, like the Suez Canal and Red Sea, have experienced disruptions, causing ships to divert through the Horn of Africa, which has resulted in a 15-20 percent surge in shipping expenditures.
India’s trade connections with the Gulf are being affected by the war as well. Exporting various items like engineering goods, food products, building materials, and manufactured goods to GCC countries plays a significant role in India's economy. The consequences of the high shipping risk will not only be seen in delays but also in the economic aspect. The expenses for transporting goods by freight are increasing. The costs for insurance coverage are also increasing.
Rising Shipping Costs Threaten Gulf Exports
Additional security fees are causing the total cost of shipments to rise. Some exporters are claiming that the added expenses are making it not worth it to send out goods. The disruption could have a significant impact on India's exports to markets in the GCC, potentially affecting around $15 billion worth of merchandise. Exporters are concerned about their narrow profit margins. A significant increase in shipping costs and insurance related to war risks can easily eliminate their competitive edge. In a slow global economy, even a minor disruption in logistics can result in orders being cancelled, shipments being delayed, and lower profits from exports. This poses an additional challenge for India in addition to the high cost of oil.
Household LPG Priority Sparks Debate Among Restaurants
During this time of doubt, the government decided to focus on ensuring there is enough cooking gas for households to avoid running out for regular consumers. Representatives from various industries argue that this change in focus on supply has resulted in unforeseen issues for commercial users like restaurants. According to Sagar Daryani, who is the president of the NRAI and also the co-founder and CEO of Wow! Momo Foods Pvt Ltd, recent government guidelines focus on increasing the use of domestic LPG but do not restrict its supply to restaurants.
LPG Shortages Challenge Hotels and Restaurants
The vulnerability of the hospitality industry to supply disruptions is highlighted by its heavy dependence on LPG. In India, the majority of restaurants rely on LPG cylinders for cooking, with piped natural gas being limited to certain urban regions.
Industry associations representing hotels and restaurants in Bengaluru, Chennai, and Mumbai have raised concerns about the lack of commercial cooking gas cylinders because of supply disruptions caused by the conflict in the Middle East.
In response, the government has instructed oil refineries to ramp up production of liquefied petroleum gas (LPG). The recent hike in the price of LPG cylinders is linked to the ongoing war involving Iran, Israel, and the US, which has led to disruptions in important energy shipping routes like the Strait of Hormuz.
Bengaluru Restaurants Face Closure Amid LPG Shortages
In Bengaluru, a few restaurants and dining outlets, mainly located in the central business area of the city, have reduced their services. The Bruhat Bengaluru Hotel Owners Association announced on Monday that they would close down all restaurants in the city in case the delivery of commercial gas cylinders is disrupted. P C Rao, who leads the Bruhat Bengaluru Hotel Owners Association, stated that eateries were facing issues with the delivery of commercial cylinders and called upon the government to step in and address the supply problem. He mentioned that approximately 25-30 hotels in the urban area were impacted after the gas supply was halted by suppliers on the morning of Monday.
Chief Minister of Karnataka, Siddaramaiah, sent a letter to the Minister of Petroleum and Natural Gas, Hardeep Singh Puri, urging him to address the issue so that businesses can operate smoothly. Additionally, Tejasvi Surya, the MP for Bengaluru South, also contacted Puri regarding the same issue.
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Hotels and Eateries Call on PM to Resolve LPG Shortage
In Tamil Nadu, hotels and restaurants are also experiencing a shortage of commercial LPG supplies. To save fuel, some restaurants have started serving fewer dishes.
"The food industry works on a 24 x 7 basis for many hospitals who require the food to be supplied on time besides IT Parks, students at college hostels, train and business travellers will all be affected, if the supply of commercial LPG is hindered," association's president M Ravi said in a letter to Prime Minister Narendra Modi.
"There are also banquet bookings undertaken by many star hotels and restaurants which will also be affected. The short supply of commercial LPG to the food industry will also hinder the dependence of the large public across Tamil Nadu," he said.
He urged the Prime Minister to ensure a continuous provision of commercial LPG for the food industry.
Mumbai Hotels Cut Menus, Hours Amid LPG Shortages
In Mumbai about 20 percent of hotels and restaurants allegedly had to close due to a lack of commercial LPG cylinders. Famous dining spots in Dadar, Andheri, and Matunga are already making changes to their menus by eliminating slow-cooked dishes such as Dal Makhani and Rava Dosa. Additionally, they are cutting back on their operating hours in order to save the limited gas supply they have left. The FHRAI, which represents the hotel and restaurant industry, raised concerns about the lack of availability of commercial cooking gas cylinders. It raised concerns to Hardeep Singh Puri, the Minister of Petroleum and Natural Gas, about the extensive disruption happening at the grassroots level. The FHRAI reported that numerous suppliers are holding back supplies, claiming a directive from the government dated March 5th.
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Restaurants in Delhi-NCR Modify Operations Amid Gas Shortages
Restaurants in the Delhi-NCR region are making efforts to adjust promptly. According to Varun Khera, who leads the Noida division of the National Restaurant Association of India (NRAI), numerous eateries are decreasing their reliance on gas.
Distributors’ Confusion Deepens LPG Crisis for Indian Eateries
Pradeep Shetty, who serves as the vice president of the Federation of Hotel and Restaurant Associations of India (FHRAI) and acts as the spokesperson for the Hotel and Restaurant Association (Western India), noted an increase in the scarcity of goods, attributing it to distributors being confused by recent government announcements.
Oil Ministry Takes Action to Stabilize LPG Availability
The Ministry of Petroleum & Natural Gas announced that they have instructed oil refineries to increase their production of LPG and allocate the additional supply for domestic use.
A new 25-day waiting period was implemented to prevent hoarding and black market activities. In addition, the authorities have utilized the Essential Commodities Act to guarantee a continuous availability of household cooking gas, instructing refineries and petrochemical plants to increase LPG production and allocate important hydrocarbon resources to the LPG supply.
Authorities have instructed oil marketing companies to give preference to providing domestic LPG connections over commercial users, stating that household consumers will be given utmost importance. The oil ministry has formed a group of three OMC executive directors to assess and consider applications for LPG distribution to establishments like restaurants, hotels, and other commercial sectors.