By R. Suryamurthy
The energy crisis gripping South Asia in 2026 is not simply the fallout of a distant geopolitical confrontation; it is the clearest evidence yet of a systemic fragility that policymakers have long acknowledged but persistently under-addressed. The disruption of the Strait of Hormuz—through which roughly 20 per cent of global oil and a significant share of liquefied natural gas flows—has once again demonstrated how deeply the region’s economic stability is tethered to external supply chains. What makes this moment particularly consequential is not just the scale of the shock—Asian LNG prices spiking by over 140 per cent, crude briefly breaching $119 per barrel—but the speed with which it has translated into domestic distress: fuel queues, fertiliser shortages, power outages, and rising inflation that is already eroding fragile post-pandemic recoveries.
The numbers tell a stark story. South Asia imports close to 80–85 per cent of its crude oil requirements, with India alone accounting for nearly 5 million barrels per day of imports, about half of which transit through Hormuz-linked routes. Pakistan and Bangladesh, meanwhile, rely on Gulf suppliers for up to 70–100 per cent of their LNG needs, embedding a structural exposure that leaves little room for manoeuvre when supply chains tighten. In Bangladesh, natural gas fuels over 70 per cent of power generation; in Pakistan, the figure hovers around 35–40 per cent, but with rising LNG dependence over the past decade. This concentration risk has turned a geopolitical choke point into an economic fault line.
The macroeconomic consequences are already materialising. Multilateral institutions have warned that a prolonged disruption could shave off over 1 percentage point from GDP growth across developing Asia while pushing inflation up by 2–3 percentage points. In South Asia—where food and energy account for a disproportionate share of household expenditure—the pass-through is immediate and regressive. Transport costs have surged, agricultural input prices have risen due to fertiliser disruptions, and electricity tariffs are under upward pressure as utilities grapple with higher fuel costs. The result is a classic stagflationary squeeze, with growth slowing even as living costs climb.
Yet the crisis is uneven in its impact, revealing the contours of resilience and vulnerability across the region. India, with roughly 70–75 per cent of its electricity generated from coal—most of it domestically sourced—has managed to avoid widespread blackouts. Its coal production, now approaching 1 billion tonnes annually, and stockpiles sufficient for nearly three months of consumption, have provided a crucial buffer. But this resilience comes at a cost: a temporary but significant retreat from climate commitments, as coal plants operate at full tilt and even substitute for household gas in some cases.
Pakistan and Bangladesh, by contrast, are bearing the brunt of the shock. In Pakistan, fuel prices have surged by as much as 40–50 per cent in certain regions, triggering widespread rationing and industrial slowdowns. Bangladesh has faced rolling blackouts as LNG shortages constrain power generation, with its export-oriented garment sector—responsible for over 80 per cent of export earnings—under acute stress. Sri Lanka, still emerging from its 2022 economic collapse, is once again confronting fuel shortages that threaten to destabilise its fragile recovery.
The policy response, so far, has been reactive and short-term. Governments have leaned heavily on demand suppression—shortened work weeks, remote schooling, fuel rationing—while scrambling to secure alternative supplies and ramp up coal generation. India has cut fuel taxes to cushion consumers, while others have raised prices to curb demand. Regional cooperation has flickered into view, with India supplying emergency fuel to neighbours, but remains far from institutionalised.
What is missing, and what this crisis underscores with renewed urgency, is a structural rethinking of energy security—one that moves beyond the binary of imported fossil fuels versus intermittent renewables. In this context, bioenergy—particularly biogas—offers a compelling, yet underutilised, pathway.
The potential is substantial. India alone generates an estimated 500–550 million tonnes of agricultural residue and organic waste annually, alongside vast quantities of cattle dung—over 300 million tonnes per year. According to government estimates, this feedstock could support the production of over 60 million cubic metres of biogas per day, translating into roughly 25–30 GW of equivalent energy capacity. Yet, as of 2025, installed biogas capacity—across both household and industrial-scale plants—remains a fraction of this potential, with compressed biogas (CBG) production under the SATAT (Sustainable Alternative Towards Affordable Transportation) initiative still in its early stages.
Across South Asia, the story is similar. Bangladesh, with its dense agricultural base and livestock sector, has the technical potential to generate over 7–10 billion cubic metres of biogas annually, enough to significantly offset LNG imports for cooking and small-scale industry. Pakistan’s livestock population—one of the largest in the world—offers comparable opportunities, with estimates suggesting biogas could meet up to 20–25 per cent of rural energy demand if scaled effectively. Nepal and Bhutan, already leveraging hydropower, could integrate biogas into decentralized energy systems, reducing reliance on imported LPG.
The advantages of biogas are not merely theoretical. Unlike solar or wind, it provides dispatchable, round-the-clock energy; unlike imported LNG, it is domestically sourced and insulated from global price shocks. It also addresses multiple policy objectives simultaneously: waste management, rural income generation, and emissions reduction. Compressed biogas can be used as a transport fuel, substituting for CNG, while digestate—the byproduct of biogas production—serves as an organic fertiliser, reducing dependence on imported chemical inputs.
And yet, despite these advantages, biogas remains marginal in policy prioritisation, overshadowed by the scale and visibility of solar and wind projects. This is a strategic oversight. If the current crisis has exposed the risks of overdependence on imported fuels, it has also highlighted the limitations of relying solely on large-scale, grid-connected renewables without complementary, decentralised solutions.
What, then, needs to change?
First, governments must treat energy diversification as a matter of national security, not merely environmental policy. This requires accelerated investment not only in solar and wind—where South Asia has already made significant strides, with India targeting 500 GW of non-fossil capacity by 2030—but also in bioenergy, storage, and grid modernisation. Biogas, in particular, should be scaled through targeted subsidies, guaranteed offtake agreements, and integration into city gas distribution networks.
Second, regional energy cooperation must move from rhetoric to reality. South Asia’s fragmented energy markets are a missed opportunity. Cross-border electricity trade—linking Nepal and Bhutan’s hydropower with India and Bangladesh’s demand centres—can provide a stabilising backbone, reducing the need for imported fuels. A regional grid, coupled with shared storage and balancing mechanisms, would enhance resilience against external shocks.
Third, demand-side efficiency must become a permanent feature, not a crisis response. South Asia’s transmission and distribution losses—often exceeding 15–20 per cent—represent a vast, untapped source of “virtual energy.” Investments in smart grids, efficient appliances, and urban planning can significantly reduce demand without compromising growth.
Fourth, pricing reforms are essential. Energy subsidies, while politically sensitive, often distort consumption patterns and discourage investment in alternatives. A calibrated approach—protecting vulnerable households while allowing prices to reflect true costs—can drive behavioural change and fiscal sustainability.
Finally, the crisis demands a shift in mindset. Energy security cannot be built on the assumption of stable global markets; it must be grounded in domestic capability and regional interdependence. The economics are increasingly aligned with this vision: solar-plus-storage costs have fallen to around $40 per MWh in many contexts, undercutting coal and gas, while biogas offers a scalable, locally anchored complement.
The immediate outlook remains uncertain. If disruptions in the Strait of Hormuz persist, South Asia could face a prolonged period of volatility, with cascading effects on growth, inflation, and social stability. But crises, by their nature, also create openings. The question is whether this moment will be used to entrench short-term fixes—more coal, more subsidies, more vulnerability—or to catalyse a structural transformation.
Because the lesson is now unmistakably clear: energy imported is energy exposed. And unless South Asia rewires its energy systems—diversifying sources, decentralising production, and deepening regional integration—it will remain, as it is today, perilously susceptible to the next shock, whenever and wherever it emerges. (IPA Service)
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