India's Energy Security and Oil Crisis Analysis

Background and Current Situation

In 1990, a Gulf region war induced a severe oil crisis in India, leading to the 1991 financial crisis. Currently, a similar disruption from the US-Israel conflict with Iran has been less damaging, partly due to a stronger economy and lower sustained oil prices. However, with India's oil import dependence increasing from less than 50% in 1990 to nearly 90%, vulnerabilities remain.

Global Supply and Strategic Moves

• The Strait of Hormuz closure initially blocked 15-20 million barrels per day, about 20% of globally traded oil.
• Iranian oil continued to reach China, despite US sanctions.
• International Energy Agency members released 400 million barrels from strategic reserves.
• Saudi Arabia and UAE redirected supplies through alternative routes, restoring 5-7 mbd to global markets.

India's Preparedness and Strategic Measures

• India diversified import sources, maintaining crude oil shipments.
• Maintains buffer stocks in commercial and strategic reserves.
• LPG production increased from 35,000 to 54,000 tonnes per day, shielding household supply despite impacting other industries.
• Government kept LPG and petrol prices stable, causing significant losses for oil marketing companies.

Fiscal Impact and Energy Security Initiatives

The fiscal deficit might rise to 4.8% of GDP due to reduced excise tax on petrol. The ceasefire has eased oil prices, but energy security remains a priority. Key measures include:

• Reducing import dependence by increasing domestic production.
• Resolving regulatory and legal challenges to encourage international exploration.
• Substantially increasing strategic petroleum reserves.
• Developing additional cryogenic storage for LPG and natural gas.
• Enhancing coal gasification technologies.

Regional Cooperation and Strategic Considerations

India should take a proactive approach in regional fuel security to counter China's initiatives. The redevelopment of the Trincomalee oil tank farms in Sri Lanka could serve as a buffer for the region. Despite the energy transition efforts, oil will remain a critical energy source for the foreseeable future.

These insights reflect the personal views of the author, not the stance of Business Standard.