India’s Crude Oil Reserves

Syllabus: GS3/Economy

Context

• According to a report by the Lok Sabha’s Standing Committee on petroleum and natural gas India’s crude reserves are currently around 3.61 million tonnes, which is 67% of their rated capacity.

Key Highlights by the Committee: 

• Maintaining Optimum Reserves: The Committee recommended the Ministry of Petroleum and Natural Gas to maintain the optimum level of Indian Strategic Petroleum Reserves.
• Budgeting: The government had allocated Rs 5,000 crore in the budget estimates 2023-24 for filling up crude oil reserves.
  • The Committee finds the capital expenditure of the Ministry and Oil PSUs in the current financial year inadequate. 
  • It recommended an increase in the allocation towards capital expenditure in the next possible opportunity.
• Indian Strategic Petroleum Reserves was set up with an objective to ensure energy security for the country in the event of oil shocks.
  • Under the Budget Estimate 2024-25, the finance ministry has allocated an amount of Rs 408 crore for construction of underground caverns in Phase – II of Indian Strategic Petroleum Reserves. 
• Concern: The Committee highlighted that a cautious approach is required for maintenance of sufficient buffer stock of crude oil due to the highly uncertain geopolitical scenario around the world, primarily the major suppliers of crude oil.

Crude Oil Imports by India

• India’s reliance on imported crude oil climbed to 88.2% during the first six months of FY25, up from 87.6% in the same period of FY24.
• India is the world’s third largest crude oil importer. 
• India’s main sources of crude oil imports are Iraq, Saudi Arabia, Russia, United States and the United Arab Emirates.

• The top five oil-producing nations in 2024 were the United States, Saudi Arabia, Russia, Canada, and China.
• The top oil-consuming countries in the world are the United States, China, India, Russia and Saudi Arabia.

Challenges Faced by the India in Crude Oil Imports: 

• Price Volatility: Fluctuating global oil prices significantly impact India’s import costs, affecting its economy and inflation.
• Geopolitical Risks: Political instability or conflicts in key oil-producing regions (like the Middle East, Russia, and Venezuela) disrupt supply chains and cause price spikes.
• Dependence on Imports: India relies on imports for about 85% of its crude oil, making it vulnerable to disruptions in supply and external factors.
• Exchange Rate Fluctuations: As India pays for crude oil in US dollars, changes in the exchange rate increase costs, especially when the rupee weakens.
• Environmental Concerns: Crude oil extraction and consumption contribute to environmental issues, pushing India to balance energy needs with sustainability.
• Diversification of Sources: India’s effort to diversify its sources of oil can be challenging due to competition and varying terms from different suppliers.

Steps Taken by India to Manage its Crude Oil Imports: 

• Diversification of Supply Sources: India is expanding its oil import base by sourcing crude from multiple countries, including Iraq, Saudi Arabia, the UAE, U.S. and even Russia to reduce dependency on any single region.
• Strategic Petroleum Reserves (SPR): India has developed strategic oil reserves to ensure supply during emergencies or geopolitical disruptions.
• Promotion of Domestic Production: India is encouraging domestic exploration and production of oil through initiatives like the Hydrocarbon Exploration and Licensing Policy (HELP) to increase self-sufficiency.
• Energy Efficiency and Alternatives: India is investing in renewable energy and improving energy efficiency to reduce overall reliance on crude oil.
• Bilateral Agreements: India has signed long-term agreements with countries like Saudi Arabia, Iraq, and Russia to ensure stable and reliable oil supplies.

Way Ahead

• India aims to boost domestic exploration and production to reduce import dependence and improve energy security.
• Expanding renewable energy capacity (solar, wind, biofuels) will help diversify India’s energy mix and reduce reliance on fossil fuels.
• Expanding the Strategic Petroleum Reserve (SPR) to ensure adequate supply in times of crisis.
• To manage price volatility, India can explore more hedging strategies and long-term agreements with suppliers for stable prices.

Source: FE