How India’s LPG shortage & fuel export restrictions are raising gasoline prices in California

US-Iran conflict impact: The global energy shock triggered by the US-Israeli conflict with Iran is now rippling through economies far beyond the Middle East, exposing how deeply interconnected fuel supply chains have become. For example, in India, shortages of cooking gas are emerging, while in California, gasoline prices have surged to nearly $6 per gallon. Though these problems appear unrelated, both stem from the same source – the severe disruption in global oil and fuel flows after Iran’s near-blockade of the Strait of Hormuz, a route that previously handled roughly one-fifth of the world’s oil trade. The disruption has forced countries to draw down reserves and adopt emergency measures to manage tightening fuel supplies.Some of these emergency responses are now creating additional strain elsewhere. India, where liquefied petroleum gas (LPG) is widely used for cooking, relied on the Middle East for more than 90 per cent of its LPG imports before the conflict escalated. With supplies disrupted, the government directed refiners to sharply increase LPG production. To achieve this, refiners reduced the output of alkylates — fuel-blending additives manufactured using LPG feedstock.According to a Reuters report, that shift is now affecting California’s fuel market. The state already faced pressure from reduced fuel shipments and lower exports from Asian refiners struggling to access Middle Eastern crude. The shortage of alkylates has worsened the situation because California depends heavily on these additives for its cleaner-burning gasoline blend mandated under strict environmental regulations.As a result, the Middle East conflict is hitting California on two fronts. Lower fuel exports from Asia have weakened gasoline supply availability, while India’s decision to prioritise cooking fuel production has reduced exports of alkylates needed for California’s specialised petrol formulation.“With India’s LPG supply constrained by the closure of the Strait of Hormuz, refiners there are producing and exporting less alkylate, adding pressure to an already tight California gasoline market,” Mason Hamilton, chief economist at the American Petroleum Institute, told Reuters.India’s decision to cut alkylate exports has come at a particularly difficult moment for California. Fuel prices in the state have already climbed to their highest levels since 2022 because of the broader global energy crunch, and tighter alkylate availability could push prices even higher as summer travel demand rises, according to GasBuddy analyst Patrick De Haan.“The more acute the alkylate supply shortfall becomes, the higher it could push prices in California,” De Haan said.A spokesperson for the California Energy Commission said authorities are aware of India’s changing fuel priorities. However, the agency currently believes the state still has adequate gasoline and blending inventories and does not expect immediate shortages, though the situation remains under close watch.California’s average petrol price stood at $6.14 per gallon on Friday, after touching a more than three-year high of $6.16 earlier in May, according to GasBuddy data. Analysts warn prices could move beyond $6.50 per gallon in the coming weeks.The situation is made worse by seasonal fuel regulations in the United States. Summer-grade gasoline standards require cleaner-burning blends, increasing production costs nationwide. California enforces the strictest standards in the country, making its fuel system even more dependent on alkylates, according to Kpler analyst Nikhil Dubey. Nationally, average gasoline prices stood at $4.52 per gallon on Friday.For India, continuing alkylate exports is becoming increasingly difficult because domestic LPG shortages remain severe. Reliance Industries, which operates the world’s largest refinery complex at Jamnagar in Gujarat, said earlier this month that it was scaling back alkylate production and exports to maximise LPG output. Kpler data showed India’s alkylate exports fell to 33,000 barrels per day in April, nearly half the 61,000 barrels per day exported in March and the lowest level since October 2023.California policymakers also face limited options if the conflict drags on. Analysts say temporary steps such as fuel tax cuts may actually worsen the problem by boosting fuel demand at a time when supply constraints remain severe.“You can’t put more pressure on a system struggling under the existing weight on it,” De Haan said.According to analysts, California Governor Gavin Newsom may ultimately have little choice but to temporarily relax the state’s fuel specifications to reduce dependence on alkylates and ease supply pressure.“His hands are tied. That’s the only choice he has,” De Haan said.