India will struggle to increase ethanol blending in gasoline beyond 20pc (E20) because of technical and infrastructure constraints, even if the crude rally triggered by the war in the Middle East improves the relative cost advantage of higher ethanol blends, market participants said.
The US-Israeli conflict with Iran and the resulting disruption to tanker traffic through the strait of Hormuz have raised concerns about crude supply for India, but the war has had little direct impact on the ethanol sector so far.
India originally planned to roll out an E20 mandate in 2030 but brought the target forward by five years after achieving an 18pc blend ratio in early 2025. Last month, the government instructed all states and union territories to sell gasoline with a 20pc ethanol blend and a minimum Research Octane Number (Ron) of 95 from April. A higher Ron helps prevent engine knocking, allowing vehicles to run smoothly with higher ethanol content.
India's ethanol production capacity of 15.28bn litres/yr for blending also exceeds the 10.16bn l/yr required to meet the 20pc road fuel target, according to commerce ministry data for 2025.
But raising blending beyond E20 will be difficult because many domestic gasoline vehicles are not compatible with higher blends. Risks include engine knocking and premature combustion, which can cause significant engine damage. The country would also need further upgrades to infrastructure before it could accelerate its blending programme.
Investors say the government has not adequately addressed the emerging demand-supply imbalance, dampening earlier optimism around the sector.
US prices dictating Mumbai values
Industrial-grade ethanol prices in India have risen modestly this month in line with gains in the US ethanol market following the escalation of the Middle East conflict.
Prices for 99pc industrial-grade ethanol cfr Mumbai have increased by $25/t so far in March — a small rise compared with other oil products. For instance, the west coast India naphtha premium has jumped by $68/t, or 166pc, this month and is at its highest level in at least five years.
US Gulf coast ethanol barge/rail fob Houston was up by $10.05/t in March. US ethanol trades at a discount to Mumbai values, supported by large-scale corn and sugarcane feedstock availability. While India prohibits ethanol imports for fuel blending, there are no restrictions on industrial-grade ethanol. This leaves India's surplus ethanol idle in distilleries with limited export prospects.
Dilip Patil, co-chairman of the Indian Federation of Green Energy Sugar Bioenergy Forum, said India's domestic pricing mechanism makes ethanol uncompetitive globally, and that government-backed export incentives are needed. He added that prolonged instability in the Middle East could pose a further threat. Any move towards fuel rationing would cut petrol demand and, in turn, lower ethanol blending, adding pressure to the already cash-strapped sugar industry.
