As the war between the United States/Israel and Iran enters its 69th day, disruptions in West Asian energy markets and shipping routes are increasingly affecting oil, gas and other commodities prices globally.

India, heavily dependent on energy imports from the region, has largely shielded household consumers from the shock. But the effect is becoming visible in one vulnerable corner of the market: 5-kg free trade LPG (FTL) cylinders used by poor households, migrant labourers, informal workers and small vendors who often lack access to formal domestic LPG connections.

The latest trigger has been prolonged disruption around the Strait of Hormuz, a 33-km-wide maritime chokepoint through which nearly 20 million barrels of oil pass daily. Since the escalation of hostilities on February 28, 2026, tighter shipping routes and supply uncertainty have pushed up global crude oil and liquefied petroleum gas (LPG) prices, forcing governments to intervene to contain domestic inflationary pressures.

India’s response has been calibrated. Household or domestic LPG prices have largely remained protected, while commercial and market-linked fuel segments have absorbed most of the increase.

The contrast is sharp. While the price of the standard 14.2-kg domestic LPG cylinder has increased only once this year, by Rs 60 in March, prices of commercial and free-trade cylinders have surged significantly. According to Down To Earth (DTE)’s analysis, the price of the 19-kg commercial LPG cylinder has risen by 62.2 per cent over the three months since the war broke out. The 5-kg FTL cylinder, commonly known as the “chhotu” cylinder, has become 38.5 per cent more expensive during the same period.

On May 1, 2026, oil marketing companies (OMCs) increased the price of the 5-kg FTL cylinder from Rs 549 to Rs 810.5, a jump of Rs 261 in a single revision. The same day, the price of the 19-kg commercial cylinder in Delhi rose by Rs 993 to Rs 3,071.5. Earlier revisions on March 1 and April 1 had already pushed prices upwards.

Domestic LPG, however, remains insulated. A 14.2-kg household cylinder in Delhi continues to retail at Rs 913 after the March hike, with no further revisions despite persistent global volatility.

The burden of rising FTL prices is falling disproportionately on people outside the formal domestic LPG system. Unlike subsidised domestic cylinders, 5-kg FTL cylinders are widely used by migrant workers, temporary residents, tea stalls, street vendors, small eateries and low-income households without permanent documentation or formal LPG connections. The smaller cylinders are easier to access because they can be purchased quickly without lengthy registration procedures or address proof.

“A large section of the population remains outside the formal LPG distribution system, which is why many people continue to rely on black markets in the first place,” an energy policy expert, who does not want to be named, tells DTE. “While the Ujjwala scheme aimed to bring households into the formal system, many migrants still lack the documentation required to obtain a connection.”

DTE’s observations reveal that the grey market for smaller cylinders, at the same time, has expanded amid ongoing supply disruptions. Variants of “chhotu” cylinders in 3-kg, 4-kg and 5-kg sizes are commonly sold through informal channels.

A consumer in Delhi’s Mayur Vihar Phase III area who depends on “chhotu” cylinder refills tells DTE that kirana (mom-and-pop) stores before the war charged Rs 80-100 per kg of LPG, but rates climbed to nearly Rs 400 per kg over the past three months. He says he visited local authorised gas agencies in April, but they told him to book the cylinder online through a dedicated app, citing a lack of availability. When he attempted to do so, the app directed him to contact helpline numbers. However, when he called those numbers, there was no response. With no other option, he says, he was forced to return to the black market. As per DTE’s calculations, at Rs 400 per kg, refilling a 5-kg cylinder through informal markets effectively costs around Rs 2,000.

A gas service technician based in Faridabad, who has been involved in transferring LPG from larger cylinders into 3-kg and 5-kg cylinders, tells DTE that prices are usually calculated by multiplying prevailing commercial per-kg LPG rates by five. According to him, LPG sold for “chhotu” cylinders rose from around Rs 90 per kg earlier to nearly Rs 350 per kg in April before moderating to Rs 200-250 per kg recently.

“Consumers should avoid purchasing cylinders from unauthorised retailers or distributors and instead rely only on authorised channels,” a spokesperson for Indian Oil Corporation Limited (IoCL) tells DTE, while acknowledging that the war has disrupted supplies and that all distributors may not always have 5-kg cylinders available. According to the spokesperson, camps are being organised across the country to improve access.

The spokesperson explains that domestic and free-trade LPG operate under different pricing and regulatory systems. Domestic LPG requires Aadhaar, address proof, identity verification and a security deposit, while 5-kg FTL cylinders can be purchased with minimal documentation. Since India imports a substantial share of its LPG requirements, commercial LPG prices are directly linked to international benchmarks, and 5-kg cylinders move in tandem with those prices.

Authorities say the government is deliberately absorbing losses to protect around 33.2 crore (332 million) domestic LPG consumers from global price shocks. According to IOCL, around 80 per cent of petroleum products, including petrol, diesel, domestic LPG and public distribution system kerosene, have seen no price changes despite rising import costs. Price increases have been restricted largely to industrial and commercial fuels.

“Domestic LPG is designed specifically for household consumption and is tracked through formal connections, while smaller cylinders operate in a more flexible retail-like space where monitoring is limited,” says Pulkit Agarwal, head of India content at S&P Global tells DTE. “These 5-kg cylinders fall under free-trade LPG, meaning their prices are aligned with commercial LPG rates, which are linked to international markets.”

According to Agarwal, the smaller cylinder functions much like low-unit consumer products sold in sachets, affordable in terms of upfront purchase but significantly more expensive on a per-unit basis.

“The smaller size makes the product immediately affordable, even if the per-unit cost is higher. It allows consumers without formal access to domestic connections to buy fuel in manageable quantities,” he says.

But the current crisis is exposing the vulnerabilities of that model. As global LPG prices surged following disruptions in the Gulf, reports of shortages and overpricing in informal markets have also increased. Consumers unable to access domestic cylinders are increasingly turning to unregulated supply chains where prices can far exceed official distributor rates.

“In periods of disruption, informal and unregulated markets can expand, leading to price distortions and overcharging. At the same time, crises push consumers toward the cheapest available fuel options, including biomass in some cases,” Agarwal adds.

Migrant workers often do not possess rent agreements or local address proof, making it difficult for authorised distributors to issue LPG connections, the energy policy expert cited above says noting that subsidy targeting under the Pradhan Mantri Ujjwala Yojana (PMUY) remains largely tied to women beneficiaries, leaving many male migrant workers outside the subsidy net despite their economic vulnerability.

PMUY 2.0 offers deposit-free LPG connections, a free first refill and a free hotplate to eligible low-income households. The scheme provides a financial incentive of Rs 1,600, or Rs 1,150 for a 5-kg connection, and allows migrants to apply using self-declaration instead of strict address proof requirements. According to Union Ministry of Petroleum and Natural Gas data, total connections released under PMUY, including Ujjwala 1.0 and 2.0, crossed 10.5 crore by May 4, 2026.

However, the energy policy expert questions why distributors keep smaller 5-kg cylinders when larger commercial cylinders are more economical for them.

According to the expert, subsidy targeting needs to become more income-centric while retaining gender sensitivity. “Instead of spreading subsidies universally, those resources could be redirected more effectively toward vulnerable households, Ujjwala beneficiaries and low-income users of 5-kg cylinders.”

The energy policy expert also questions the present structure of universal domestic LPG price regulation. She says middle- and upper-income households continue to benefit indirectly from capped LPG prices even when they do not require financial support, because OMCs absorb the gap between retail prices and actual costs.

The expert suggests stronger price protection or targeted support for 5-kg cylinders, while allowing greater market-linked pricing for larger domestic cylinders used by consumers who are better able to absorb higher costs.

India’s dependence on West Asia makes the situation particularly sensitive. The region supplies nearly half of India’s crude oil imports and remains a major source of LPG, gas and petrochemical feedstock. The Gulf also accounts for a significant share of India’s trade, remittances and investment flows.

To manage supply stress, the government has introduced a series of mitigation measures. Refiners have been directed to maximise LPG production by diverting feedstock, while domestic LPG, piped natural gas and compressed natural gas for transport have been prioritised for allocation. Export duties on diesel and aviation turbine fuel have been raised, excise duties on petrol and diesel reduced, and customs duty exemptions temporarily extended for key petrochemical products.

“Keeping LPG prices artificially low universally for all households may appear consumer-friendly, but sustaining subsidies can place a significant burden on public finances,“ Swasti Raizada, senior policy advisor in International Institute for Sustainable Development (IISD)’s Energy Programme tells DTE.

An April 2026 analysis by IISD shows that India spent at least Rs 4,30,000 crore ($51 billion) on energy subsidies last fiscal year, with 75 per cent directed toward electricity and LPG consumption subsidies. The report identifies LPG as India’s largest fossil fuel subsidy and a growing fiscal vulnerability because nearly 60 per cent of the country’s LPG is imported. Subsidies for LPG reached Rs 71,718 crore ($8.4 billion) in FY25, nearly half of which came through under-recoveries borne by OMCs when retail prices were kept below actual costs.

“The recent tensions in the Gulf highlight India’s exposure to global LPG price volatility. If prices remain elevated at current levels, under-recoveries could exceed Rs 60,000 crore ($7 billion) in FY26-27, increasing pressure on public finances,” says Sunil Mani, IISD policy advisor, in the report. “Scaling alternatives such as electric cooking and decentralised biogas, while better targeting LPG support, can improve affordability and reduce long-term fiscal risks.”

The energy policy expert, cited above, also emphasises the need to rethink documentation requirements for migrant workers seeking LPG access. Aadhaar-linked mobile verification, voter IDs, or digital payment-based verification systems, she says, could help integrate migrant workers more effectively into the formal LPG distribution network.

The uneven pricing structure reveals the limits of India’s consumer protection strategy. By insulating domestic LPG users while allowing commercial and free-trade segments to absorb global price signals, the government has protected politically sensitive household consumers, she adds, but the cost burden is increasingly shifting onto economically vulnerable groups operating outside the formal subsidy net, including migrant workers and small informal businesses for whom the 5-kg cylinder remains the only accessible cooking fuel.

“A more sustainable approach would be to gradually allow market-linked price pass-throughs, and instead redirect fiscal resources toward targeted support for vulnerable groups. This could include enhanced assistance for low-income households, including Pradhan Mantri Ujjwala Yojana beneficiaries, as well as migrant workers through support for 5 kg free-trade cylinders, backed by strong safeguards to minimize leakages and ensure efficient delivery,” Raizada says.

With inputs from DTE Hindi's Raju Sajwan and Vivek Mishra

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