Bitumen Supply Risks May Slow Down Road Construction Amid Geopolitical Tensions: India Ratings
“In National Highways Authority of India HAM (hybrid-annuity model) projects, bituminous works account for 8%-12% of costs, with a 20% rise in bitumen prices potentially increasing the overall costs and impacting margins of road EPC players by 150 to 250bp in flexible pavement road projects. While contingency buffers and sponsor support mitigate the risks, sustained disruptions at the Strait of Hormuz could impact the execution pace, especially given contractors have bid aggressively in recent award cycles. Additionally, NHAI HAM projects benefit from inflation-linked payment structures, offering a level of resilience that may not be as prevalent in state and regional projects,” says Suryanarayanan S, Analyst, Infrastructure & Project Finance Group, Ind-Ra.
High Import Dependence Increasing Vulnerability of State & Regional Projects: India’s state-level and regional road projects are highly vulnerable to geopolitical tensions in the Gulf because of their heavy dependence on imported bitumen. With nearly 40% of India’s bitumen sourced from imports – primarily from the UAE, Oman, Iraq, and Iran, any disruption in shipping lanes such as the Strait of Hormuz can quickly tighten supply for contractors on state/regional projects. These projects lack the procurement buffers available with national highway contractors/agencies. This dependence is amplified by domestic bitumen availability being tied to refinery crude throughput, meaning even minor disturbances in crude inflow can reduce domestic supply, further squeezing availability for state-level execution.
During FY21-FY26, bitumen imports have risen to 40% from 30% of the total demand. While national highway projects have minimal import reliance, over 95% of imports come from Gulf suppliers exposed to current tensions.
Execution Pace Likely to Slow during Peak Construction Months: State and regional road works may experience notable slowdowns as the peak geopolitical uncertainty coincides with India’s peak construction season from February to June, when bitumen demand surges. Contractors in these projects often maintain limited inventories due to cost and storage constraints, making them vulnerable to even brief import disruptions that can cause site-level material shortages, delay pavement works, and compromise the timely utilisation of state budgets. This risk is considerably less pronounced for national highway projects, which have better access to domestic supply sources, leaving state projects disproportionately exposed to timing-related disruptions.
Price Escalation Risk Threatening Project Economics: State and regional projects are at substantial risk of cost overruns as imported bitumen – typically 20%-25% cheaper than domestic supply – may turn significantly costlier if geopolitical tensions persist or the Strait of Hormuz faces extended closure. Unlike NHAI’s HAM contracts, which include inflation-linked mechanisms, most state projects lack such structured protection and are therefore exposed to margin erosion, if bitumen prices rise sharply. Given contractors bid aggressively in recent award cycles, sustained price increases could strain project viability and force states into time extensions or re-tendering processes.
In NHAI’s HAM projects, bituminous works typically account for 8%–12% of project costs, while bitumen represents only 0.23% of the Wholesale Price Index basket, limiting inflation compensation. Ind-Ra’s analysis indicates that a sustained 20% increase in bitumen prices would lead to an overall cost impact of 1.5% to 2.5%. However, projects generally incorporate a contingency buffer of up to 1% of the project cost and a fixed-price EPC contract with the sponsor, offering some cushions and largely mitigating this impact.
Published on:
23 March 2026
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