Plummeting oil and gas demand in India, Pakistan, and Bangladesh, the largest economies in South Asia, underscore the importance of energy ties between this region and the Gulf. These relationships are a natural product of close geographic proximity and the enormous energy demand growth that has taken place in South Asia in recent years.

India is now the third-largest crude oil importer in the world, and Saudi Arabia had typically been its principal supplier until it was surpassed by Iraq in 2018. Even with a shift in suppliers, Gulf crude constitutes 42% of Indian oil imports. While natural gas makes up a relatively small portion of India’s energy mix, its demand growth has been substantial in the past five years. It has imported 54% more liquefied natural gas since the government of Prime Minister Narendra Modi pledged to invest $60 billion in the country’s natural gas infrastructure. This included building new LNG import terminals to more than double India’s current levels of natural gas usage, which already account for 7% of global LNG imports. In 2018, approximately 55% of India’s 30.6 billion cubic meters came from Gulf producers, with 14.8 bcm from Qatar and an additional 2.0 bcm from Oman and the United Arab Emirates. This figure may increase in the future, depending on the outcome of talks to renegotiate gas pricing formulas currently in force and the success of plans to increase export capacity in Qatar and Oman.

While oil represents the main portion of India’s energy imports, Gulf LNG already plays a considerable role in neighboring Pakistan and Bangladesh. Qatar had been providing Pakistan with 62.5% of its monthly LNG imports and recently signed a 15-year contract with Bangladesh’s national oil company Petrobangla for 2.5 million tons of LNG per year. Bangladesh also imports small volumes from Oman, and its gas market had been viewed as a potentially strong area of demand growth. However, the level of economic growth expected across the entire South Asia region is likely to undergo a number of downward adjustments that may set projections back by years, depending on how the three countries are affected by the economic turmoil that has become synonymous with worldwide coronavirus response efforts.

The combined containment policies of India, Pakistan, and Bangladesh have resulted in the world’s largest coronavirus-related lockdown. A consequence of this vital measure, taken to stop the spread of a deadly disease in one of the most populated regions of the world, has led to unprecedented levels of energy demand destruction. In India alone, the sheer scale of the economy has demonstrated how vital petroleum products are to daily life in the world’s second most populated country. According to one claim, India’s oil consumption has plummeted by 70% since the implementation of the country’s March 25 lockdown, erasing 3.1 million barrels per day of demand from oil markets. In the near term, India appears poised to take advantage of low pricing by refilling its storage and strategic reserves with an imminent purchase of 5.5 million barrels from the UAE and 9.2 million barrels from Saudi Arabia.

However, with 39.14 million barrels of total capacity in its strategic reserves – enough to satisfy 9.5 days of oil demand – India will run out of room for cheap crude quickly. Importers have already issued a flurry of force majeure declarations to crude oil and LNG deliveries in recent weeks. Many of these were issued to Gulf suppliers. Hindustan Petroleum refused further deliveries from Iraq, and Petronet halted LNG deliveries from Qatargas. In some cases, the force majeure declarations were rejected, leading to a buildup of LNG carriers along India’s shoreline, one of which was identified as belonging to the Abu Dhabi National Oil Company.

In India, March sales of diesel fuel fell by 21%, with gasoline 17% lower. These numbers will only rise after the implementation of the lockdown, which has since been extended. While transportation of essential goods is among the services exempted from the order, truck traffic has collapsed to less than 10% of pre-lockdown levels. With one of the world’s largest domestic aviation markets, a shutdown of passenger flights has led to the grounding of over 600 commercial aircraft, with jet fuel demand falling 32.4%. This loss of demand has led to dramatic cuts in refinery operations, which in turn led to the aforementioned force majeure declarations to many Gulf oil deliveries. The only area of product demand growth, which is perhaps a silver lining for Gulf states, is for liquefied petroleum gas. Used predominately as a cooking fuel, LPG imports increased by nearly 20% in 2019 as a result of a government policy encouraging the use of cleaner cooking fuels in rural communities. Gulf states have been prominent suppliers of LPG to India, and at the end of March, it was announced that Saudi Arabia would help meet rising demand during India’s lockdown.

In Pakistan, Islamabad has directed its oil marketing companies to cancel orders for additional crude in late March. The country has also cut back its LNG deliveries from the Gulf, reaching an agreement with Qatar to reduce its five monthly cargoes to three. Pakistani gas markets may continue to tighten once the demand crisis ends, as coal is rapidly accounting for a larger share of the national power generation mix. The switch has been brought about by an energy crisis of its own, the development of domestic coal reserves, and new coal plants constructed as part of the China-Pakistan Economic Corridor. If a coronavirus-related economic crisis causes a further draw on Pakistan’s foreign exchange reserves, increased reliance on domestic coal supplies may be accelerated.

Thus far, there have been no such decisions taken in Bangladesh, where natural gas accounts for 61% of the country’s power generation mix. However, it remains to be seen how well Bangladesh can contain the spread of the coronavirus, and what effect this will have on its economy. With most of the world’s attention focused on the recent agreement by the OPEC+ group to cut global production by nearly 10%, demand destruction appears to have held greater sway over oil price movement, with global benchmarks well below Gulf break-even prices. In fact, the April 2 tweet from U.S. President Donald Trump announcing imminent production cuts boosted prices more than the formal announcement of the cuts themselves. The continuation of national lockdowns does not paint an optimistic picture for South Asian demand, with India extending closures until May 3, Bangladesh until April 25, and Pakistan until April 30. Production cuts will do little to stimulate demand, and the South Asian context highlights that the real issue facing producers is demand destruction and that the outcome of the coronavirus crisis is anything but certain.

Regional demand recovery depends on restarting the region’s economies, and the ability to do so is contingent on how well lockdown measures can contain the virus’ spread. Healthcare systems in many parts of South Asia were struggling before the pandemic. If they are overwhelmed, this is likely to prolong lockdowns and other measures that contribute to low energy demand.

Even when South Asian demand increases again, growth is sure to be slow. It may be too soon to tell what post-coronavirus energy markets will look like, but Gulf producers should consider these possible scenarios. Low oil prices have enabled India to leapfrog the implementation of new low-sulfur diesel fuel standards aimed at improving its air quality. Other measures that will become a part of the new normal in a post-virus world may have their own implications for demand. As price crashes in 2014 heralded the beginning of a world with too much oil, demand destruction in South Asia’s economies should perhaps motivate producers to consider their future in a world with too little demand.