Iran war energy shock raises Asia's interest in fuel blending

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Energy disruptions from the Iran war have rippled through Asia’s fuel markets, pushing up costs for households and drivers and sharpening policy attention on blending ethanol and other biofuels into transportation fuel, according to interviews with drivers, analysts and industry groups. The disruptions have been linked to the Iran war’s closure of the Strait of Hormuz, a key shipping artery for energy supplies to the region.

In India’s capital region, taxi driver Ravi Ranjan described how shipping problems tied to the war led to delayed deliveries of cooking fuel, pushing him into paying much more for LPG. Ranjan said he was paying three times as much for liquid petroleum gas after facing delays, saying he “used to get a cylinder of LPG for 1,000 rupees ($11), now I pay 3,000 rupees ($31) in the black market.” He tied the added costs to the broader pressure of disrupted logistics while India’s prime minister urged people to cut fuel use by relying more on public transport and carpooling and by reducing travel.

Across the country in Chennai, advertising executive Sushmita Sankar said her gasoline and cooking-fuel expenses have risen as the war disrupted energy availability. She said gasoline blended with ethanol — now the default mix available at fuel stations — has also worsened her car’s mileage. Sankar said, “Fuel expenses are increasing and with only ethanol mixed petrol available, I feel my car’s mileage has reduced in the last year or so,” adding that “Having to now spend a lot of time to fill my car or buy LPG is making things even more hectic.”

India has been trying to respond to the shock by increasing biofuel blending as a way to reduce dependence on imported fossil fuels and also to curb pollution. The government has proposed permitting vehicles to run on 85% ethanol, or even 100%, amid government efforts to expand blending levels. India also increased petrol and diesel prices and local reports described panic buying that produced long queues in Odisha, while officials banned all sugar exports at least through September to help preserve sugar supplies for possible higher ethanol blending.

Government supporters say biofuels can cut vehicle pollution and reduce the impact of import disruptions, but drivers and experts have raised questions about mileage and the broader tradeoffs of using crop materials for fuel. Environmental experts warned that producing ethanol from grains and other crops could compete with food and livestock needs, and they also pointed to concerns about water and land stress. Analysts also said the move toward higher blends could take time because manufacturers and supply chains need to adapt, including by researching new fuel blends and testing vehicle compatibility.

Much of India’s interest in higher ethanol blending is taking shape on top of a rollout that already changed what many drivers see at pumps. The report said most fuel pumps in India now sell a 20% ethanol blend after India met a national goal in 2025, five years ahead of its earlier target. Policymakers are considering raising the blend across gasoline up to 27% by 2030, and the transport ministry’s proposal to allow 85% ethanol — or fully ethanol — has been described as a signal to automobile makers to begin preparing compatible vehicles, though a timeline for the higher blends remains unclear.

Industry representatives framed the push toward higher ethanol blends as part of an energy-security and emissions strategy. “Moving toward higher ethanol blends reflects the government’s long-term vision for energy security, lower emissions, and reduced dependence on imported crude oil,” said Chandra Kumar Jain, president of the Grain Ethanol Manufacturers Association. The report also said the 20% ethanol blend contributed to a 2.5% reduction in crude oil imports in 2025, citing the Institute for Energy Economics and Financial Analysis, while Charith Konda of IEEFA said any import reduction is helpful but that rapid blending has created uncertainty for automakers, including confusion about policy direction.

Southeast Asia is pursuing similar approaches, with governments using biofuels as a buffer against current and future disruptions. The report said Indonesia wants to raise fuel blending to 50% biodiesel from 40% under a program launched in March by President Prabowo Subianto, who said, “We are going in a big way to biofuel.” Indonesia’s push has been described as part of an effort for “energy sovereignty,” and it has also been tied to developing a domestic market for palm oil, though experts cautioned that land clearing and deforestation would need monitoring. Malaysia, meanwhile, approved a plan in April to gradually increase its fuel mixing to 15% biodiesel and 85% fossil diesel, with a future 20% blend under consideration.

Even where policies move quickly, experts said the benefits and tradeoffs are more complicated than simply replacing gasoline with ethanol. Shyamasis Das of the Centre for Social and Economic Progress said it was not clear how higher blends would affect current engines and that scaling manufacturing for higher concentrations would take time. Das also said drivers may notice tradeoffs because ethanol has lower energy density than gasoline, which can mean consuming more fuel to travel the same distance, and he cited concerns that ethanol feedstocks could compete with food supply and raise prices and water stress. He said that in India about 70% of ethanol comes from crops such as sugarcane, corn and rice, and he warned that producing a liter of ethanol can require substantial water depending on the process.

Across the region, experts said any climate gains from biofuels depend on how the fuel is produced and sourced, including whether it draws on residues, waste, or additional land and water resources. Konda said electric vehicles are likely to be a more efficient long-term solution, along with shifting industries to renewable power rather than relying on fossil or biofuels. Das added that producing ethanol from materials that do not require additional land or water — including agricultural residues, municipal waste and used oils — is key, and said, “If the biofuel is not sourced from residues or waste, they are not usually treated as renewable.”