The global energy landscape is currently experiencing its most severe supply disruption to date, manifesting in crises ranging from India’s cooking gas shortages to California’s escalating gasoline prices.
These seemingly disparate issues are, in fact, deeply interconnected, underscoring the profound economic ripple effects of the U.S.-Israeli war with Iran.
Iran’s near-closure of the Strait of Hormuz has plunged global oil trade into disarray, effectively cutting off importers from approximately one-fifth of the world’s oil supply that previously traversed the crucial waterway.
This disruption has forced oil buyers to deplete strategic stockpiles and implement emergency measures to manage widespread fuel shortages.
Some attempts to address these shortages, such as the Indian government’s efforts to bolster liquefied petroleum gas (LPG) supplies, are inadvertently spreading the strain. India, the world’s most populous nation, relies on LPG as its primary cooking fuel.
With access to Middle Eastern LPG, which accounted for over 90% of India’s total imports before the Iran conflict, severely curtailed, New Delhi has directed refiners to maximize domestic LPG output. To comply, these refiners have reduced alkylate production – motor fuel additives derived from LPG feedstock.
For California, this dwindling alkylate supply exacerbates existing concerns about a potential gasoline shortage. The state is already facing reduced fuel production and exports from Asian refiners struggling to obtain Middle Eastern crude oil.
Alkylates are particularly sought after in California because they burn cleaner than other additives, and the state mandates a unique gasoline blend to reduce smog.
Consequently, California drivers are experiencing a double blow from the conflict: a slump in Asian fuel exports directly impacts their motor fuel supply chain, while the additives vital for the state’s specialized gasoline blend are harder to procure because India is prioritizing its cooking fuel needs.
“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,” stated Mason Hamilton, chief economist for the American Petroleum Institute industry group.
The decision by Indian refiners to curtail alkylate exports could not have come at a worse time for California. Motorists in the most populous U.S. state are already contending with the highest gasoline prices since 2022, amidst the global fuel supply crisis triggered by the war.
A further reduction in alkylate availability is likely to inflate prices as the summer driving season boosts demand, 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 warned.
A spokesperson for the California Energy Commission (CEC), a state agency, acknowledged India’s evolving priorities but affirmed that California maintains a healthy supply of gasoline and blending components. The CEC does not anticipate a shortfall but is closely monitoring the situation.
California’s average retail motor fuel price reached 6.16 on May 7, as the state’s gasoline stockpiles hover near record lows, according to GasBuddy data. Prices could potentially exceed 4.52 a gallon on Friday, according to GasBuddy data.
India has limited capacity to continue supplying alkylates to California. The LPG deficit in India has become so severe that citizens have endured hours-long queues for cooking gas cylinders, often only to be turned away and forced to resort to the black market.
Restaurants and other businesses have voiced concerns that they may be compelled to close. Reliance, operator of the world’s largest refinery in Jamnagar, Gujarat, announced this month that it would reduce alkylate output and exports to maximize LPG production.
India’s total alkylate exports plummeted to 33,000 barrels per day in April, roughly half of the 61,000 bpd exported in March, marking the lowest level since October 2023, according to Kpler data.
Similar to New Delhi’s struggle with LPG shortages, California Governor Gavin Newsom faces few viable options to prevent further increases in pump prices as long as the Iran conflict persists.
Any temporary measures aimed at lowering fuel prices, such as tax waivers, would likely stimulate demand, thereby deepening the alkylate shortage and leading to even greater price shocks for consumers, De Haan explained.
“You can’t put more pressure on a system struggling under the existing weight on it,” De Haan emphasized.
For Newsom, this suggests that his only practical recourse to stabilize California’s fuel prices might be to waive the state’s fuel specifications, thereby reducing the demand for alkylates, according to GasBuddy’s De Haan.
“His hands are tied. That’s the only choice he has,” De Haan concluded.
However, the CEC spokesperson indicated that the commission does not believe a waiver of blending requirements would benefit the state.
