Hormuz turmoil drives South Asia LNG, power stress

Disruption in the Strait of Hormuz, even as flows intermittently resume, is already feeding into power markets across South Asia, exposing structural vulnerabilities in LNG-dependant economies including India, Bangladesh, Pakistan, and Sri Lanka.

While some oil and gas flows continue through the critical maritime chokepoint, heightened geopolitical risk has driven up freight costs, insurance premiums, and spot LNG prices, placing immediate pressure on import-dependent power systems.

The Strait of Hormuz remains one of the world’s most critical energy arteries, through which roughly a fifth of global oil and a significant share of LNG shipments pass. Recent tensions linked to the Iran conflict haven’t fully halted flows, but they have disrupted normal shipping patterns. Tankers have been rerouted, delayed, or selectively cleared, while risk premiums have surged across energy markets.

For South Asia, the issue is not only physical supply disruption but price transmission. LNG prices in Asia have risen sharply in recent weeks, with spot cargoes moving into the mid-to-high teens per million British thermal units (MMBtu), up significantly from earlier in the year.

Even temporary spikes have outsized impacts in countries that rely heavily on imported LNG for power generation and lack long-term pricing insulation. India, the region’s largest energy consumer, is better positioned than its neighbours due to a more diversified energy mix and greater access to long-term LNG contracts. However, it’s still not immune.

India

An Argus Media report said that Indian LNG importers may still need to bid for uncommitted LNG cargoes from the Atlantic despite a U.S.-Iranian ceasefire. Higher LNG prices are also feeding into power tariffs, particularly for gas-fired plants operating on imported fuel. This is placing pressure on distribution companies and industrial users, especially in sectors such as fertilisers, petrochemicals, and manufacturing, where gas is a key input.

Negative environmental takeaway: India has already indicated that it will rely more on coal for power generation amid the price spike and loss of LNG flows, causing even more doubt as to whether the country can reach its newly revised decarbonisation goals. Coal already represents around 70% of the country’s power generation mix, according to an S&P Global report.

Bangladesh

The situation has been more acute in Bangladesh, which remains highly exposed to spot LNG markets to meet marginal demand.

“About 50% of Bangladesh’s LNG imports are tied to long-term contracts with Qatar, while the remainder is procured from the spot market,” Mohammad Tamim, vice chancellor at Independent University, Bangladesh, told Gas Outlook. “Currently, spot prices are more than double January levels, forcing Bangladesh to rely heavily on higher-cost purchases,” he added.

This shift is placing immediate pressure on the country’s power sector. Bangladesh already required roughly $4 billion in subsidies last year to support electricity generation, while higher LNG prices are expected to push costs even higher.

The country now has the highest per capita power subsidies in the region, paying $18.53 in per capita power subsidies in fiscal year 2023-2024, despite having the second lowest per capita consumption, according to the Bangladesh Independent Power Producers Association. As a result, the country faces a growing risk of supply constraints and fiscal strain if elevated prices persist. Bangladesh’s GDP may fall by 1.2%, and inflation to rise 4% if fuel prices jump further, The Business Standard reported on April 9^th.

Pakistan

Pakistan, for its part, faces a more complex exposure profile, with reduced volume dependence but heightened sensitivity to price spikes during peak demand periods.

“Pakistan’s exposure is no longer systemic, but it remains structurally sharp at the margin,” Khalid Waleed, a Sustainable Development Policy Institute (SDPI) research fellow, told Gas Outlook. “RLNG [Regasified Liquefied Natural Gas] is projected to account for around 15% of generation, but it disproportionately serves evening peak demand,” he said.

This creates a concentrated risk profile. Pakistan imports most of its LNG from Qatar, where supply disruptions have raised concerns. Even where volumes remain available, higher spot prices are feeding directly into electricity tariffs.

“Recent price spikes above $15 per MMBtu have already translated into higher power costs,” Waleed added, noting that while increased solar capacity has reduced overall dependence, price exposure remains significant during peak hours. The result is a system where reduced reliance on LNG volumes hasn’t eliminated vulnerability. Instead, price risk has become more concentrated, amplifying its impact on power tariffs and grid stability.

Sri Lanka

Sri Lanka, still recovering from a recent economic crisis, also remains highly vulnerable to external energy shocks. With limited domestic energy resources and constrained fiscal capacity, the country has limited margin to absorb higher fuel costs. Any sustained increase in LNG or oil prices risks feeding directly into inflation, power shortages, and renewed social discontent.

An Atlantic Council report concurs, arguing that Sri Lanka is already facing a severe energy cost crisis driven by skyrocketing global LNG and liquefied petroleum gas (LPG) prices, fuelled by Middle East conflict disruptions. It added that prices for cooking gas surged by 19%–23% in early April 2026, while high fuel import costs for power generation are increasing electricity tariffs. This is already straining its economy that’s still recovering from the 2022 fuel price shocks.

Meanwhile, a key structural issue across South Asia is the growing reliance on spot LNG markets rather than long-term contracted supply. While spot procurement offers flexibility during periods of low prices, it leaves buyers exposed during times of market stress. The current Hormuz-related disruption highlights this vulnerability, as countries scramble to secure cargoes in a tightening market.

At the same time, power pricing mechanisms in many South Asian countries aren’t fully aligned with volatile fuel costs. Governments often intervene through subsidies or tariff controls to shield consumers, but this creates fiscal strain and delays necessary adjustments. The result is a buildup of financial pressure across utilities and state budgets, which can eventually lead to abrupt tariff increases or supply curtailments.

Beyond immediate market impacts, the disruption underscores broader geopolitical risks facing the region. South Asia’s energy security remains closely tied to external supply chains that are vulnerable to conflict, particularly in the Middle East. Even partial disruptions can have cascading effects, as higher global prices filter into local power systems and economies.

While some governments are exploring diversification strategies, including increased renewable energy deployment and expanded domestic production, these measures will take time to materially reduce dependence on imported fuels. In the near term, LNG will remain a key component of the region’s power mix, particularly for balancing intermittent renewable generation.

The current episode serves as a reminder that energy security in South Asia isn’t solely a function of supply availability, but also of price stability and procurement strategy.

As long as countries remain exposed to volatile spot markets and geopolitically sensitive supply routes, disruptions in places like the Strait of Hormuz will continue to translate into power sector stress and broader economic risk.

(Writing by Tim Daiss; editing by Sophie Davies)