Tale Behind India's Oil Reserves

The war on Iran has created oil shortage and oil price hikes. What I missed, in the middle of the war, was that the International Energy Agency (IEA) — the world’s top energy watchdog — asked India to share its oil with the world!

 

Wait a minute. Given that India imports 85% of its oil, how can we possibly have oil to share? What was the basis for the IEA ask anyway? Therein lies a tale, explains Nithin Sasikumar.

 

The story starts way back in 1973, when the Arab countries launched a surprise war on Israel. The US airlifted weapons and supplies to help Israel. The furious Arab states imposed a ban on all oil exports to the US and any Western country that supported Israel. Oil prices in the West quadrupled. Petrol pumps began to run out of oil. The West realized the importance of building an “oil cushion”, oil reserves that could last at least 90 days. They formed the IEA, an agency formed and led by (who else?) the West.

“So if a supply disruption were to hit them again, they’d have three months of buffer which would allow them to ride out the storm and prevent the economy from grinding to a halt.”

 

India is not a member of the 32 country IEA. It began to build its own Strategic Petroleum Reserves (SPR) only in 2006 – you have to be a bit rich to buy in advance + storage facilities cost money. Today, we have such facilities in Mangalore, Padur (Karnataka) and Vizag. At times when oil prices crashed (e.g. COVID), India went and bought a lot at the cheaper price to stock up.

 

One other thing about India’s SPR – we have leased parts of it to others!

“In 2017, the UAE’s state-owned oil company ADNOC struck a deal to use India’s SPR. So, ADNOC ships its oil to India, fills the caverns, and gets to sell that oil to Indian refineries at commercial rates in normal times. If India ever faces a genuine supply crisis, it can access that oil.”

In other words, as the Indian government puts it:

“The government of India has the first right to take the crude oil, in case of an oil shortage event.”

The Iran war is just such an oil shortage event.

 

Back to the original question. The IEA was requesting India to release part of its oil reserves to help stabilize the global shortage. A request, not an obligation since we are not a member of the IEA. India rightly refused since what is the point of an SPR if you don’t keep it for your own needs?

 

Note: To be fair, India has released some of its SPR in the past (e.g. 2021) when it felt global oil prices were being manipulated by creating an artificial scarcity. The Iran war though is not an artificial scarcity or manipulation by sellers. It is a genuine shortage created by Israel’s war.

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