Gulf Tensions Threaten Bitumen Supply, Slow India's Road Projects: Report
India’s road construction pipeline, particularly state and regional projects, faces potential delays and cost pressures as geopolitical tensions in the Gulf threaten bitumen supply chains, according to a report by India Ratings and Research (Ind-Ra).The agency said disruptions in key shipping routes such as the Strait of Hormuz, coupled with rising crude prices, could tighten supply and push up bitumen costs, disproportionately affecting projects that rely heavily on imports. While national highway projects have relatively limited exposure, state-level works may see execution slowdowns during peak construction months.
“Bituminous works account for 8-12 per cent of costs in NHAI HAM projects, with a 20 per cent rise in bitumen prices potentially increasing overall costs and impacting margins of road EPC players by 150 to 250 basis points in flexible pavement road projects,” said Suryanarayanan S, Analyst, Infrastructure and Project Finance Group at Ind-Ra. He added that while contingency buffers and sponsor support offer some mitigation, sustained disruptions could still affect execution pace, especially given aggressive bidding in recent award cycles.
India’s dependence on imported bitumen has increased in recent years, making the sector more vulnerable to external shocks. According to Ind-Ra, imports accounted for around 40 per cent of total demand during FY21–FY26, up from 30 per cent earlier. More than 95 per cent of these imports originate from Gulf countries, including the UAE, Oman, Iraq and Iran, regions currently exposed to geopolitical tensions.
This reliance is particularly acute for state and regional projects, which often lack the procurement flexibility and supply buffers available to national highway authorities. Domestic bitumen supply is also linked to refinery crude throughput, meaning even minor disruptions in crude inflows can reduce availability and further tighten the market.
The timing of potential disruptions adds to the risk. The February-to-June period, which marks India’s peak road construction season, coincides with heightened geopolitical uncertainty. During these months, demand for bitumen typically surges, leaving contractors with limited inventories vulnerable to even short-term supply interruptions.
Ind-Ra noted that such disruptions could lead to site-level material shortages, delaying pavement works and affecting the timely utilisation of state budgets. In contrast, national highway projects are better insulated due to stronger access to domestic supply sources.
Cost pressures are another key concern. Imported bitumen is usually 20%-25% cheaper than domestic alternatives, but this advantage could reverse if supply routes are disrupted or crude prices rise sharply. For state projects, which often lack inflation-linked payment mechanisms, this creates significant exposure to cost overruns.
“Unlike NHAI’s hybrid-annuity model contracts, most state projects do not have structured protection against price escalation, leaving contractors exposed to margin erosion,” Ind-Ra said. With many contractors having bid aggressively in recent years, sustained cost increases could strain project viability and potentially lead to time extensions or re-tendering.
For national highway projects under the hybrid-annuity model, the impact is expected to be more contained. Ind-Ra estimates that a sustained 20 per cent increase in bitumen prices would result in an overall project cost increase of 1.5% to 2.5%. These projects typically include contingency buffers of up to 1 per cent of total cost, along with fixed-price engineering, procurement and construction contracts supported by sponsors.
Additionally, inflation-linked payment structures provide some resilience, although the benefit is limited by bitumen’s relatively small weight of 0.23 per cent in the Wholesale Price Index basket.
Despite these safeguards, Ind-Ra cautioned that prolonged geopolitical disruptions could still affect execution timelines, particularly if supply constraints persist during high-demand periods.
The report shows a growing structural risk for India’s infrastructure sector, where rising import dependence and global uncertainties are increasingly influencing project economics and timelines. State and regional road projects, with their higher exposure and limited financial safeguards, remain the most vulnerable to these evolving risks.
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