Parl Panel urges diversification of crude sources to cut geopolitical risks

A parliamentary committee has flagged India's heavy dependence on crude oil imports and rising geopolitical risks as major challenges for the country, and urged the government to step up diversification of supply sources and strengthen risk management mechanisms.

In its report tabled in Parliament last week, the Public Undertaking Committee noted that India imports nearly 89 per cent of its crude oil requirements, making the country vulnerable to global disruptions arising from conflicts, sanctions, civil unrest in oil-producing nations and disruptions in key shipping routes such as the Suez Canal and the Red Sea.

Recent events, including the Russia-Ukraine war and tensions in West Asia, have highlighted the fragility of India's energy supply chain.

The committee recommended that Ministry of Petroleum and Natural Gas (MoPNG) and state-run oil companies intensify efforts to diversify crude oil sourcing both geographically and contractually, bolster strategic petroleum reserves and develop alternative import routes.

It also called for institutionalising risk management tools such as hedging and flexible term contracts to safeguard energy security against future geopolitical shocks.

"India meets about 89 per cent of crude oil requirements through imports and given the current geopolitical events such as Russia-Ukraine conflict, Israel-Hamas conflict, sanctions on some of the oil producing countries (like Iran, Venezuela, Russia), political/civil unrest/strikes in any oil producing country anytime, India could face risk of crude oil import uncertainty, which in turn could have an adverse impact on smooth supply of crude oil and its prices," the panel said.

Also, the oil and gas sector faces several environmental concerns due to the nature of their operations, which include greenhouse gas emissions, air and water pollution, and waste management.

"Recent global events, including the Russia-Ukraine conflict and tensions in the Middle East, have underscored the vulnerability of India's energy supply chain and its dependence on international trade flows," its report said.

"In view of this, the Committee recommends that MoPNG and CPSUs (central public sector undertakings) should intensify efforts to diversify crude oil sourcing both geographically and contractually, strengthen strategic petroleum reserves, and enhance alternative import routes."  Further, "risk management practices, including hedging and flexible term contracts, must be institutionalized to safeguard India's energy security against future geopolitical shocks," the report added.

The report also drew attention to internal challenges faced by the sector, including ageing oil fields, delays and cost overruns in projects, rising land acquisition costs, and crude production not keeping pace with capital expenditure. Environmental concerns such as greenhouse gas emissions, pollution and waste management were also highlighted.

While acknowledging steps taken by companies such as Indian Oil Corporation and ONGC Videsh to diversify supplies, the committee said sanctions, financial volatility and regulatory hurdles in host countries continue to constrain overseas investments.

"These issues not only affect India's energy import bill but also impede the ability of CPSUs to secure overseas exploration and production assets, thereby limiting long-term energy security," it said.

It recommended closer coordination between MoPNG and the Ministry of External Affairs to strengthen diplomatic engagement with oil-producing nations, secure favourable investment terms and address taxation and regulatory issues faced by Indian companies abroad.

"The Committee recommends that MoPNG should work closely with the Ministry of External Affairs (MEA) and other relevant government agencies to strengthen diplomatic engagement with oil-producing nations, secure favourable investment terms, and address taxation and regulatory hurdles faced by CPSUs abroad," the report said.

"At the same time, CPSUs should adopt digital and enterprise risk management frameworks to continuously assess geopolitical vulnerabilities, ensuring a more resilient and sustainable energy strategy for the country.