Strategic Pricing Reserves: A New Approach to Energy Security for India’s Companies
With the signing of a Memorandum of Understanding (MoU) between President Trump and President Pezeshkian on June 16, there is cautious optimism regarding the end of hostilities in Iran. The reopening of the Strait of Hormuz has facilitated the transit of nearly 90 ships as of June 23. The easing of sanctions on Iranian crude oil and gas sales, along with Iran’s commitment to allow International Atomic Energy Agency (IAEA) inspectors back into the country, further supports this hopeful outlook.
India, heavily reliant on oil imports, is experiencing relief as global oil prices decline. The country imports approximately 88% of its annual crude oil needs, translating to around 1.8 billion barrels, with nearly half sourced from the Gulf region. The recent conflict necessitated swift action from India to address a shortfall of 2.4 million barrels per day, prompting a dual strategy of diversifying oil sources and utilizing its Strategic Petroleum Reserves (SPR).
The Problem with India’s Strategic Oil Reserves
India’s current SPR capacity stands at about 5.33 million metric tonnes, or 39 million barrels, stored in underground facilities across Visakhapatnam, Mangaluru, and Padur. However, at the onset of the conflict, only 24.7 million barrels were available, equating to a mere 5 days of reserves instead of the planned 7.8 days. The lack of fully operational Phase 2 projects, which would have added significant capacity, resulted in a shortfall of nearly 61.9 million barrels when the war began.
The cost of crude oil has also surged, rising from $70 to around $110 per barrel at the start of the conflict. This increase could potentially inflate India’s annual import bill to between $72 billion and $80 billion, creating a significant fiscal burden. Reports indicate that Indian oil companies were losing approximately Rs 700 crore daily in May 2026, despite moderate price adjustments.
What Should be Done
To enhance energy security, India should consider increasing its SPR capacity from 17 to 45 days, with an additional 10-15 days of reserves on tankers. The International Energy Agency recommends a minimum SPR of 90 days. A recent agreement with the Abu Dhabi National Oil Company (ADNOC) allows for the storage of up to 30 million barrels of oil in India’s SPR, which could bolster its reserves.
In light of the recent conflict, India must also address the financial implications of rising oil prices. The country has previously benefited from discounted crude oil prices, such as during the Russia-Ukraine war. Establishing a Strategic Pricing Reserve (SPR) could help mitigate future fiscal challenges. This reserve could be funded by saving from budgeted import costs when oil prices are low, potentially accumulating a significant corpus over time.
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