India's petrochemical industry and the realities of a fragile supply chain

More than three weeks into the escalating geopolitical tensions in West Asia, with no end in sight, a ripple effect on allied industries dependent on oil and gas is becoming evident. Among the downstream industries most impacted is petrochemicals, along with its key derivatives sectors — plastics and agrochemicals. 

Over the past week, major petrochemical producers have temporarily shut down operations. These include Indian Oil Corporation Limited’s (IOCL) propylene unit in Paradip, Odisha; Mangalore Refinery and Petrochemicals Limited’s secondary units; GAIL (India) Limited’s polyethylene unit in Uttar Pradesh; and Bharat Petroleum Corporation Limited’s (BPCL) acrylic acid unit. Due to shortage of upstream petrochemical feedstocks, downstream units have suspended operations, like in the case of Andhra Petrochemicals Limited, whose supply of propylene was halted by Hindustan Petroleum Corporation Limited. Despite this, on 12 March 2026, Prime Minister Narendra Modi laid the foundation stone for an INR5,514 crore (USD599 million) polypropylene unit in BPCL’s Kochi refinery.

Meanwhile, reports of increasing prices of plastic pellets are affecting the plastic manufacturing industry, resulting in a fall in demand for polymers. Attempts to pass on the rise in raw material costs to downstream sectors have been met with resistance, given the uncertain market conditions. Around 70% of consumer packaging in India is made from flexible plastics. With a shortfall in crude oil and gas and the temporary shutting down of key petrochemical facilities, it can be anticipated that the production of packaging material will be hit. This would, in turn, affect the food and beverage industry and the fast-moving consumer goods (FMCG) sector. The plastic manufacturing industry is largely made up of micro, small, and medium enterprises (MSME), and government data suggests there are 30,000 such units, employing 5 million people. These MSMEs’ limited ability to absorb the current setback is affecting these entities as well as the millions they employ. 

The textile industry is seeing a similar impact across its supply chain with production of synthetic fibers impacted. 

Within India’s fertiliser industry, geopolitical tensions have impacted not only imports of primary fertiliser nutrients urea and di-ammonium phosphate (DAP), but their domestic production as well. India is reliant on imports for about 13% of its urea and 60% of DAP needs. Liquefied natural gas (LNG) is the key feedstock for urea production, serving both as an energy source and production input. Reports suggest gas supplies to the fertiliser industry were at 70% of its requirement just two weeks into the war. Meanwhile, DAP production requires ammonia, derived from natural gas. With this deficit of fertiliser stocks, there is a concern that if the conflict persists until May or June, when crops demand fertilisers, prices will go up significantly, pushing up crop costs. To address this, the government will likely increase subsidies on chemical fertilisers, ultimately affecting the country’s push to move away from fossil fuel-based fertilisers. 

An already oversupplied market

India is currently a net importer of chemicals and petrochemicals, with about 45% of the country’s petrochemical intermediate products imported. To reduce this import dependence, India has been planning significant capacity expansion and has already increased its petrochemical intensity index to 13% in 2025. Backing this, reportedly, is the industry’s planned capital expenditure of USD37 billion (INR3.4 lakh crore). According to the government, this expansion would secure India’s position among the world’s leading petrochemical hubs, especially as 20% of existing refineries face closure. These closures, though, are taking place in the context of an oversupplied market, which will likely impact India as well, even if to a limited degree. While India weathered the global overcapacity storm in 2025, utilisation of Indian refineries has been hit. Capacity utilisation for propylene and ethylene, two key petrochemical feedstocks for producing plastics, have been falling since 2019, with a brief respite in 2021–22.

India needs to break free from fossil fuel dependency

India’s import dependency on crude oil already makes it vulnerable to price fluctuations, which have been significant in times of oversupply, with the current conflict only compounding the situation. Instead of entrenching itself further in the import-dependent petrochemical ecosystem, India’s aspiration for self-sufficiency could take the country in another direction, away from layers of vulnerability. A shift to alternate sustainable materials, including non-fossil fuel-based fertilisers and decentralised production and consumption systems, would help India escape global instability while creating alternative economic systems and generating employment. 

This article was first published in ET EnergyWorld.