After Prime Minister Narendra Modi’s appeal to citizens to reduce fuel consumption, Petroleum Minister Hardeep Singh Puri has raised concerns over the mounting losses of oil marketing companies. As they are digesting some of the crude cost spikes, these companies’ under-recoveries are expected to add up to nearly ₹2 lakh crore during the April-June quarter alone. But this crisis is not only about corporate losses—what they indicate is the severity of the crude supply constraints the country faces.
By now, disruptions to the flow of crude oil, liquefied natural gas and LPG through the Strait of Hormuz have stretched to more than 75 days. The petroleum minister has said that India’s total oil reserves—including the strategic reserves and the stocks available with refiners—could last 76 days. That’s far too little, especially when compared to China. India’s effort to build a strategic reserve, which began in 2004, has stagnated at 5.3 million tonnes for over two decades. Meanwhile, China’s reserves, started in 2007, have grown to more than 200 MT.
As the third largest crude oil importer in the world, India should surely have planned for a longer horizon. Not long ago, we were buying discounted Russian crude even though the US and Europe were pressuring us not to. Much of the cheap imports were purchased by private refiners, who found ready markets for their refined products in the US and Europe. Surely, some of those supplies could have been used by the government to add to the strategic reserves given the growing unease in West Asia.
In the near future, India needs to enhance its strategic reserve capacity by at least four times as diversifying crude purchases can never fully shield it from global supply shocks. Such disruptions are not new—and on each occasion, they have increased the country’s import bill and depleted its forex reserves, forcing the government to take extraordinary measures, like the recent increase in customs duty on gold and silver from 6 percent to 15 percent. But these are temporary patches on a festering wound. The resolve now needs to be to guard the economy in a more robust manner for far longer.