Fragile ceasefire, lasting threat: Why India can't relax on oil security

India's energy economy and state finances have suffered since 2022, when Russia invaded Ukraine, because of lack of adequate stock and dependence on foreign fuel

One would expect India’s policymakers and refiners to rest easy after Washington hemmed, in a patchwork fashion, a ceasefire between Israel and Iran on Monday night, which may prove too delicate to offer a lasting solution to peace in West Asia.

 

Two-and-a-half hours into the ceasefire, Israel accused Iran of raining missiles and prepared to strike back. It’s a fragile cease fire. “But looking beyond the ceasefire, the deeper challenge remains — a lasting peace would require rapprochement between Israel and Iran,’’ said Vandana Hari, a Singapore-based energy expert.

 

For now, a sense of calm has prevailed over markets. With the risk premium evaporating, Brent crude has surrendered all gains made since mid-June, when Israel attacked Iran, and currently trades at $67 per barrel. European benchmark TTF (Title Transfer Facility) gas prices have dropped over 10 per cent, sending Asian spot LNG (liquefied natural gas) rates lower.

 

“While the situation remains fluid, markets are rapidly unwinding risk premiums and refocusing on fundamentals,” said Paris-based maritime intelligence agency Kpler, adding: “A rebound in crude loadings is expected in coming days.”

 

LNG vessel traffic through the Strait of Hormuz is rebounding, with Kpler data showing nine LNG ships transiting the Strait on Tuesday — more than double the previous day’s count, and above the weekly average.

 

Build firewalls

 

Industry officials and energy experts Business Standard spoke to view the latest conflict involving Iran, Israel and America — the third such flareup in the last four years — as a wakeup call for New Delhi to accelerate building guardrails to secure itself against uncertainty in energy supplies. 

 

“Uncertainty and conflict in West Asia are a sure trigger for global oil prices. For India, this becomes a challenge,” said Vedanta Resources Chairman Anil Agarwal in a statement, advocating greater adoption of self-certification mechanisms for project clearances.

 

“This (crude import) dependence is not good for the country and perhaps, on the energy security front, we should try to promote our own resources,” said Deepak Ballani, director general, Indian Sugar and Bio-Energy Manufacturers Association (Isma). “What better than ethanol, which comes from our own resources and benefits our farmers,” he added.

 

India’s energy economy and state finances have suffered since 2022 —when Russia invaded Ukraine, sending oil prices to multiyear highs and LNG rates to a record — because of lack of adequate stock and dependence on foreign fuel, energy experts said.

 

Affordable supplies and access to fuels are crucial for India, which is the world’s fastest-growing major economy, and the biggest contributor to global oil demand amid dwindling domestic output.

 

China has built the world’s largest oil inventory capacity over the past decade. The world’s largest oil importer owns oil storage capacity between 1.7 billion barrels (bbbl) and 2.2 bbbl, and has stored some 1.56 bbbl to cover almost five months of full crude imports with extensive pipeline networks to transport the oil, said UK-based information provider Energy 

Intelligence.

 

There is no public data available about India’s stocks but strategic storage, the crucial component, covers just about eight days of imports. Refineries and import terminals may have usable, effective crude oil storage of around 20 days, but inventories are localised, meaning coastal refineries may carry only 8 days of stock while Indian Oil’s inland facilities stock more; it’s also not possible to transport localised inventories to other facilities, according to two top refining officials. Usable inventory of petrol and diesel is around 10 days each, the officials said. Oil Minister Hardeep Puri has said that India's oil reserves stand at around 74 days, but he did not provide volumes. 

 

The way storage is calculated varies, industry officials said. A top government official told Business Standard that the government includes crude oil stored in import terminals, storage at refineries, crude oil under processing in facilities, in pipelines, in tankers unloading at ports, in tankers in India's Exclusive Economic Zone — 200 nautical miles from a country's coastline — petroleum product stocks in terminals, refineries and pipelines, and ships coming to India.

 

The US holds around 400 million barrels (mbbl) of strategic stocks while China stores 286 mbbl in strategic petroleum reserves (SPR), Energy Intelligence data shows. By contrast, India’s SPR capacity totals just 39 mbbl, of which only around 70 per cent was filled till early 2025, according to a government report. Indian SPR controls about 60 per cent of the reserves, with the rest leased to private players.

 

Indian SPR chief executive officer (CEO) L R Jain declined to comment on current stock levels.

 

“We have diversified our supplies in the past few years, and a large volume of our supplies does not come through the Strait of Hormuz now,” Puri tweeted  from Ireland.

 

Puri is somewhat right. India seized an opportunity, to the displeasure of Washington and the European Union (EU), to access a large volume of Russian oil at a discount after Europe stopped purchases — Russia now accounts for 35-40 per cent of India’s 5 mbbl per day in crude imports. The medium, sour Urals grade was the closest in quality to India’s West Asia supplies, which suited Indian refineries, said R Ramachandran, former refinery director, Bharat Petroleum.

 

“Now that India has been purchasing more of its crude oil from Russia, the country is better placed than before,” said Tilak Doshi, an energy expert who has worked for Saudi Aramco and for King Abdullah Petroleum Studies and Research Centre (KAPSARC) in Riyadh. “Nevertheless, any impact of the closure of the Strait (of Hormuz) will be felt by India,” Doshi added.

 

India is exposed to as much as 2 mbbl per day of crude oil shipments — or 35-40 per cent of its total imports — from Iraq, Saudi Arabia, the UAE, and Kuwait. It was also increasingly vulnerable to disruptions in LPG (liquefied petroleum gas) supplies, a top official from a state refiner said. Qatar, the UAE, Kuwait, and Saudi Arabia supply 60 per cent of India’s 31 million tons in annual LPG demand. 

A blockade of less than 15 days of Hormuz was manageable, the official said. Stocks at refineries, import terminals, and oil in pipelines would cover 20-30 days of demand, industry sources said, excluding nine days of strategic reserves. But that was still minuscule compared to India’s fuel market, which needed much more storage capacity, the official said. 

 

Gas blues

 

The impact of wars on natural gas supplies is worse. India is totally reliant on Qatar and the UAE for over half of its LNG supplies unlike China, which has huge domestic production, pipeline supplies from Russia and Central Asia, and adequate storage. India bought 11 million tons of LNG from Qatar last year, 40 per cent of its total needs.

 

So, when Israel dropped bombs on South Pars, the Iranian side of the gargantuan gas field it shares with Qatar, leading LNG supplier Doha was concerned, according to news reports.

 

Natural gas is critical to India’s energy future and lower emissions, and city gas is the biggest driver of growth.

“Our sense is (city gas) volumes will again double in the next four-five years to become the largest gas consuming segment by 2028-29,” said Saurabh Singh, Asia Pacific lead for Kearney's Energy and Process Industries practice area. “It’s imperative for most CGD (city gas distribution) players to secure  LNG supplies, keeping in mind  their growth,” Singh added.

 

While demand for LNG is strong, India has no insurance against supply disruptions. It lacked gas storage infrastructure, barring some tankage at import terminals, a gas industry official said. China, by contrast, had a gas storage capacity of 43.7 billion cubic metres (bcm)  in 2024, accounting for over 10 per cent of its apparent gas consumption, according to local consulting firm SCI99. 

 

India can source alternative supplies of LNG from the US but the blockade of the Suez Canal by Houthi rebels has blocked the 

shortest route available. “The alternative option of routing around the Cape of Good Hope would increase voyage times by 14-20 days and raise shipping costs by at least 15-25 per cent,” said Darshan Ghodawat,  CEO, AVA Global Logistics.

 

“We are likely to see gas prices going to extreme levels, making LNG unaffordable for many countries; these could reduce spot LNG imports as well,” said Anne-Sophie Corbeau, global research scholar at Columbia University’s Center on Global Energy Policy.

 

India needs to develop commercial storage also, using depleted  gas fields and salt caverns. Commercial storage is essential for trading using seasonal arbitrage and monthly gas price volatility of  LNG, said Rajesh Mediratta, CEO, Indian Gas Exchange.