India Needs Strategic Pricing Reserves for Energy Security

India faces significant fiscal risks due to crude oil price volatility. Recent conflicts highlighted the need for both physical storage and financial protection.

Key Facts on India's Oil Imports: • India imports 1.8 billion barrels of crude oil annually. • Daily imports reach approximately 5 million barrels. • The Gulf region provides 48 percent of these daily imports. • India's break-even cost for crude oil is $84 per barrel.

Current Status of Strategic Petroleum Reserves (SPR): • Existing underground storage capacity stands at 5.33 million metric tonnes. • Storage levels fell to 64 percent at the start of the recent conflict. • This resulted in only 5 days of reserve coverage instead of the planned 7.8 days. • Delayed Phase 2 projects caused a loss of 9.5 days of reserve capacity. • Total storage deficiency during the war reached 61.9 million barrels.

Financial Impact of Price Spikes: • Crude oil prices rose from $70 to $110 per barrel during the Iran conflict. • A $40 increase per barrel adds up to $72 billion to $80 billion in annual costs. • This cost rivals the total Indian defence budget. • Oil companies reported losses of Rs 700 crore per day in May 2026.

Proposed Strategic Pricing Reserves (SPR) Model: • India should create a financial corpus by saving money when oil prices are low. • Savings would come from the difference between budgeted costs and cheap market rates. • A suggested model involves injecting funds into a reserve based on price brackets:

  • $15 per barrel if oil costs $40-$50.
  • $10 per barrel if oil costs $50-$60.
  • $5 per barrel if oil costs $60-$70. • At a daily import rate of 5 million barrels, this could build $2.2 billion in a month. • A Special Purpose Vehicle (SPV) could manage and invest this corpus. • Parliamentary approval could protect these funds from being diverted to other projects.

Recommendations for Energy Security: • Increase land-based storage from 17 days to 45 days. • Complete Phase 2 and begin Phase 3 of the SPR project. • Aim for a total storage capacity of at least 150 million barrels. • Build the Strategic Pricing Reserve while current global prices are low.

Source: The Times of India