The blockade of the Strait of Hormuz has knock on effects on supply chain, energy prices and financial markets worldwide. So going ahead how do we withstand energy shocks in future?

Some of the ideas put forth include developing alternative routes, opening humanitarian channels and corridors, and creating a level playing field. Domestically, many countries have resorted to tax cuts to curb volatility in energy prices. However, these measures are short-term and work best in the near-term horizon.

In March, India cut central excise duties on petrol and diesel by ₹10, to cushion consumers from the impact of higher crude oil prices. Additionally, the government has increased ethanol blending up to 20 per cent, reducing the reliance on imports. These are the welcome steps that will ultimately reduce the negative impact on people.

Storage reserves

In 2004, India decided to build three Strategic Petroleum Reserves (SPRs) in Andhra Pradesh (Visakhapatnam) and Karnataka (Mangaluru and Padur) to withstand energy supply shocks, as a longer-horizon strategy. Under Phase I of the SPRs, 5.33 MMT capacity of these three locations was completed in 2019.

Under Phase II, ISPRL (India Strategic Petroleum Reserves Ltd), a Special Purpose Vehicle (SPV) established in 2004-05 to oversee and manage India’s strategic crude oil storage, is in the process of constructing additional storage capacities at Padur and Mangaluru. Moreover, 4 MMT of SPRs at Chandikhol in Odisha is under the initial stage.

Developing SPRs take time. First, constructing these rock caverns (where petroleum is stored) is a slow, time-consuming process. Second, since India mostly exports heavy crude oil, it requires the construction of specific infrastructure. Third, the commercialisation of these facilities is still in an early stage, and the profitability is low; it may be difficult to attract private players. In 2025, a private company secured a first-of-its-kind contract to construct an SPR in India on a build-to-operate basis.

The collective SPRs, which include both public and industry stocks, bring India’s total storage capacity to 74 days of net imports, combining the 9.5 days of ISPRL’s and 64.5 days of Indian companies’ stocks, which is lower than the International Energy Agency’s (IEA) recommended 90 days of net import cover for its members.

The actual stock cover is only around 60 days of net import, and the majority of the stock comes from the industry. It is imperative to note that most of the stocks held by oil companies are public sector undertakings. A considerable part of IEA members’ stocks comes from industry; the top 10 IEA net importers’ stocks (in number of days) are mainly from industry, and public stocks are lower (Table). It is less imperative who holds the stocks as long as they are in sufficient quantities.

Six IEA countries — Sweden, Switzerland, Greece, Turkey, the UK, and Luxembourg, do not have any public stocks, all their oil stocks are held by the industry.

In terms of volume, the stocks amount to 5.33 MMT, which roughly translates to about 40 million barrels (the IEA reports only 21 million barrels, considering only dedicated stocks/storage facilities, i.e., discounting the facilities leased to foreign entities such as ADNOC, Abu Dhabi, UAE, at Mangaluru).

Global experience

However, India can use the leased storage/stock during a supply crunch. Globally, China leads with 1.4 billion barrels, followed by the US with 413 million barrels (Chart).

The completion of Phase II will increase SPRs’ capacity to 11.83 MMT, covering an additional 12 days of energy supply, bringing it to 86 days, closer to the IEA’s yardstick. Additionally, other Asian countries — Japan, Malaysia, and South Korea, hold adequate SPR levels.

However, many South Asian countries have almost non-existent SPRs; they rely on continuous supply for their needs. These are two extreme cases of SPRs, determined by numerous factors, including requirements, usage magnitude, and ease of construction of storage facilities. The higher SPRs among IEA members, especially in Europe, are driven by proximity to oil fields, ease of transportation, and the nature of crude petroleum itself (light vs. heavy). It is easier and cost-effective to transport and store light crude than heavy crude.

In the quest to create SPRs for ensuring energy security, India’s strategies ahead lie in a plurilateral approach.

First, SPRs should be ramped up further by increasing private stock holding. Inviting private players with incentives, such as restructuring Production-Linked Incentives (PLIs), to construct storage facilities and adopt the Public-Private Partnership (PPP) model.

Second, diversifying crude oil portfolios by buying more light crude (which is relatively lighter than the crudes India imports most from the Middle East and Russia) from the US, i.e., WTI (West Texas Intermediate). This will require recalibrating refineries, but it is high time we diversify our refineries as well.

Third, a significant ramp-up in imports from Brazil and Venezuela is required. Since their crude is dense and heavy, storing it is costly, but it can be used contemporaneously. The majority of India’s refineries cater to these types of crude. Access to Venezuelan petroleum is now easy, as sanctions have been either lifted or relaxed. This can be used to cross-subsidise the relatively expensive light-weight crude for SPRs.

Fourth, exploring the feasibility of storing oil stocks abroad should be hastened. The ISPRL is in initial talks with Oman to lease a facility for crude oil storage. The IEA allows its members to store reserves abroad under bilateral agreements. Many IEA member countries have facilities for stocking oil abroad, e.g., the UK’s storage facilities in The Netherlands, Germany, and Belgium. We must emulate this practice.

The writer is Assistant Professor of Economics, Indian Institute of Management Kashipur, Uttarakhand

Published on May 9, 2026