Current Affairs 2022: Why has India Opened Its Strategic Oil Reserves?

The rising oil prices worldwide remain an issue for countries like India, which supplies around 85 per cent of its overall requirement.

Recently, India decided to discharge five million barrels of crude oil from its own strategic oil reserve in a planned move with other major global oil exporters such as the United States and Japan. The main aim was to decrease the cost of rising oil which reached its highest peak in the year 2021. The global community applauded the proposal, but the issue remained whether it would be effective in lowering oil prices.

What are Strategic Oil Resources?

Strategic Oil Resources are crude oil stocks stored by a country's government or private enterprise for use in the event of a crisis or disaster. India has three major strategic oil reserves with around 5.33 million tonnes of storage capacity, which is about 38 million barrels. Oil reserves are located in three places in India: Visakhapatnam with a storage capacity of 1.33 million tonnes, Mangalore with a storage capacity of 1.5 million tonnes and Padur with a storage capacity of 2.5 million tonnes.

As per the authorities, these reserves are adequate to cover the country's storage capacity for 9.5 days. Strategic Petroleum Reserve Limited restored the storage in 2020, when the Covid-19 pandemic struck economies worldwide causing fuel consumption to collapse and oil costs to decrease below USD 20 per barrel on April 21, 2020.

In March 2020, a price variation happened between two countries Russia and Saudi Arabia. These two countries could not agree on crude oil export levels. However, in the summer of 2020, the OPEC nations announced that they would reduce oil supply by 9.7 million barrels per day, enabling prices to stabilize. When the economic blockade that is lockdown ended and the global market reopened, demand for oil increased in the market globally, but OPEC members declined to restore the oil supplies. It was perceived that it caused the oil price to go up.

Need for Strategic Oil Reserve

India still has to purchase 83 per cent of its crude oil consumption, increasing India's import duties and widening the country's current account deficit (CAD).

In the global market, the cost of crude oil varies, which causes instability. India's economic condition depends on oil-importing nations, namely the Gulf, which is not desirable for a democratic country like India.

It is generally identified that outbreaks in the Gulf countries happen frequently, which puts our country in a problem. To minimise these unusual issues in the country, the Indian government is constructing Strategic Oil Reserves to store higher capacity of oil.

It is very well understood that India's present oil resources are adequate to fulfil the country's oil consumption for only 13 days. However, this is inadequate to deal with any unplanned occurrence in the worldwide crude market. So, India plans to have petroleum reserves that can last for 90 days in a crisis. India needs to build 13.32 metric tonnes of extra oil reserves to achieve oil sufficiency for a period of three months.

Effects of Oil Reserve

The rising oil prices worldwide remain an issue for countries like India, which supplies around 85 per cent of its overall requirement. Hence, people throughout the country are paying record-high costs for gasoline and diesel. The government has recently reduced excise duty on petrol by INR five per litre and diesel by INR 10 per litre.

As a result, India has pushed for more affordable oil prices from producers and protested against supply management by the Organisation of Petroleum Exporting Countries and its members.

India is a strong believer that liquid hydrocarbon pricing should be fair, sustainable and decided by supply and demand. India has consistently raised an issue about oil producers for unfairly regulating supply below demand levels. This results in higher oil prices.

India has taken up many initiatives to minimise its consumption of oil, which includes aiming for a 20 per cent ethanol mix in petrol by 2025. It also intends to make the change from petroleum-based transportation to electrical vehicles as smooth as possible. Furthermore, it is expanding crude oil supplies, increasing procurement from the United States and vigorously supporting the shift to renewable transportation.

­About the Author

Ponnila SM is pursuing MBA from the Thiagarajar School of Management. Writing is her passion, and she feels it allows her to explore different words and put them together to form meaningful sentences.

 

 

 

 

 

 

 

 

 

Note: The views expressed in this article are solely the author’s own and do not reflect/represent those of Shiksha.