High fuel prices push India towards alternative energy as oil demand slows

By: Team India Tracker

Higher peak electricity demand during cooking hours suggests expensive oil is nudging households away from fossil fuels and towards electricity

The economic impact of the Iran conflict is becoming increasingly visible in India’s energy market. Nearly two months of elevated crude oil prices and supply disruptions have begun to alter how households, transport operators and industries consume energy, with demand shifting away from conventional petroleum products towards electricity and other alternatives.

Data from the Petroleum Planning & Analysis Cell (PPAC) show that India’s consumption of petroleum products declined 6.5 per cent year-on-year to 19.93 million tonne in May, signalling that higher prices are starting to weigh on demand.

Although petrol consumption rose 3.3 per cent and diesel 1.5 per cent, growth in both fuels was barely half the pace recorded during FY26, indicating that consumers are beginning to moderate usage as fuel costs rise.

The slowdown was more pronounced in industrial fuels. Consumption of naphtha fell 29 per cent, bitumen 39.4 per cent, LPG 20.5 per cent and petroleum coke 11.3 per cent, while aviation turbine fuel (ATF) demand remained broadly unchanged.

The pattern points to weakening activity across several sectors. Softer diesel demand suggests slower freight movement, while lower bitumen consumption indicates a moderation in road construction. Reduced use of naphtha and petcoke also reflects softer industrial demand as manufacturers grapple with rising energy costs.

Supply disruptions from the Gulf have compounded the problem. Lower LPG imports have prompted domestic refiners to divert more naphtha towards LPG production, tightening supplies for industrial consumers. In response, many factories have switched to fuel oil, whose consumption jumped 24 per cent in May, highlighting the growing substitution among industrial fuels.

The adjustment is also becoming visible inside Indian homes.

Higher LPG prices and concerns over supply have triggered a surge in demand for induction cooktops over the past two months, as households increasingly view electric cooking as a practical alternative or backup. Retailers and appliance makers have reported a sharp increase in sales, reflecting changing consumer preferences as cooking gas becomes more expensive.

This shift is beginning to influence electricity demand as well. Government estimates suggest widespread adoption of induction cooking could add 13-27 gigawatts to India’s peak power requirement, particularly during morning and evening cooking hours, illustrating how rising oil prices are gradually shifting energy consumption from fossil fuels to electricity.

Commercial transport operators are also adjusting. Bulk diesel prices have risen far more sharply than retail pump prices, prompting fleet owners to optimise routes, improve fuel efficiency and reduce discretionary travel. Airlines, meanwhile, have trimmed flight schedules in response to higher aviation fuel costs, leaving ATF consumption largely unchanged despite the busy travel season.

Private fuel retailers have also witnessed softer sales as higher pump prices encouraged consumers to shift towards state-run fuel outlets offering relatively lower prices.

Taken together, the latest data indicate that the West Asia conflict is having broader economic consequences than initially expected. What began as a supply-side shock is now influencing consumption patterns across transport, manufacturing and households.

The trend also reinforces a longer-term structural change. Rising fuel costs are accelerating the adoption of electric vehicles, CNG, induction cooking and other alternatives as consumers seek to reduce their dependence on petroleum products.

For an economy that imports more than 85 per cent of its crude oil requirements, sustained geopolitical tensions and elevated oil prices could hasten India's transition towards cleaner and more diversified energy sources—not only because of environmental concerns, but because the economics of conventional fuel consumption are becoming increasingly unfavourable.