Filling up strategic Oil reserves- A Win-Win Policy

The blog is written by Aviral Singh. The Author is a MBA student of IFMR GSB at Krea University

India is the third-biggest oil consumer in the world after The United States & China. It imports approximately 82% of its oil needs. Due to its heavy dependence on foreign markets for oil, it cost a lot on the country’s financials. India spent US$ 63.305 billion in the financial year 2017-18 on its crude oil imports. Moreover, it’s high reliance on foreign nations for its oil needs forces India to formulate its foreign policy accordingly and always possess a strategic challenge for India to meet its demand should there be any unforeseeable event.

In order to mitigate that risk, India came up with underground strategic oil reserve facilities at Vishakhapatnam, Mangalore and Padur. Which has a combined storage capacity of 5.33 million tonnes. Once full these reserves can help India meet 9.5 days of its oil needs. Given the rising demand for energy needs in India and oil forming a large proportion of it the government value these reserves a lot and always hunt for getting a good bargain in terms of price for filling up these reserves.

In the present scenario, the price of Brent crude is tanking like never before. While you think that it is all because of the slump in global oil demand due to Covid-19 outbreak you are seeing only half aside of the coin. Oil prices can be kept at high-profit margins despite demand slump if the supply is controlled through production cuts. OPEC along with Russia and The US are 3 big stakeholders when it comes to oil supplies. All 14 nations of OPEC wanted to cut the production so as to keep the prices of oil steady but non-compliance with Russia which is the third-biggest oil supplier has led them into a production war with both parties keeping the supply steady and even ramping up at times which combined with the huge drop in demand due to covid-19 outbreak it has lead to the sharp decline of oil prices a 40% drop in its price in March and right now the price of it is trading between $ 20- $ 30 per barrel which is at a record low.

This has led to the huge opportunity for high consuming high dependent oil importer India which can take advantage of low oil prices. However, sluggish growth of the economy due to low demand and the covid-19 outbreak has come as a double whammy for India which has resulted in low demand for oil from in the past few months. It can be observed from the fact that the demand for diesel which accounts for about 40% of the country’s oil requirement fell 7.4% in October 2019 due to slow growth in the economy. With that being said it happens to be that India has found another way to turn this tide in its favour despite all the odds and that is by ordering middle eastern oil to fill up its reserves. This single move has led to the serving of two important purposes which are of long-term importance to India both in terms of trade and diplomacy. First to take advantage of low oil prices to fill up its 5.33 million tonnes of empty oil reserves which are created by India Strategy Petroleum Reserve Ltd and it is being done by buying Brent crude worth of Rs 5000 crore at the dirt-cheap rate of around $ 30/barrel and secondly by giving a strong signal of solidarity to its trade partners and strategic allies in The OPEC and USA by doing its bit to stabilize the plummeting oil prices and help bridge the demand-supply gap.

I believe such a strategic move in this testing times is a masterstroke in the favour of nation from every aspect and has already started paying dividends by helping us to fully load our strategic reserves without a heavy hole on our critical current account deficit. On the diplomatic front, such gesture by India will be seen as a friendly move towards our high-value partners in the middle east which play a crucial role in both shaping up the national security policies and deciding the efficacy of foreign policy.

A lot of managerial learning to take away here especially with respect to long term vision and strategic thinking while decision making which was portrayed by our bureaucrats in this low profile yet crucial decision which was taken recently.

The opinions expressed in this article are those of the author. They do not reflect the opinions or views of Krea University or its members.  


The blog is written by Rajashree Sadhu. The Author is a MBA student of IFMR GSB at Krea University

“God always have a better plan for us, though the process might be hard and painful!” that’s what my grandfather told me always. Hey wait, I am not writing this article to give you philosophical advices.

But………. Then What?

Well, this abrupt lockdown of the entire world has bought a lot of unexpected dismay in our lives (especially migrant’s workers and not so privileged section of the society). Yet, isn’t that’s what life is, it happens to us when we are busy having other plans.

We are continuously worried and grumbling about negative things that we are facing due to this pandemic- loss of lives(due to Covid-19), job losses, salary cuts, internships cancelled, business at halt, economy is at a standstill, disruption in supply-chain and above all ‘THE GREAT RECCESSION’ (on its way).

But salute to the frontline warriors- doctors, nurses, policemen, sanitation workers and others who are working day in and day out to help us overcome this tough situation. This pandemic coupled with lockdown (which is the only solution to stay safe) has put humanity into a huge test. It’s an opportunity for all of us to serve the under-privileged section of the society who are not able to get their daily bread due to lockdown and no earnings.

Yet some miserable incidents are happening in few places – like pelting of stones at policemen, doctors when they are trying to help us in this pandemic, such incidents are really unforgiving. This is not the time when we should believe in rumors, be arrogant and thereby create violence in society. We all have to fight this together and cooperate with the frontline workers.

This time too shall pass, so we should focus on the positive things that we are experiencing and how can we make the most of the time that is available to us. If you ever felt that you lack time to do the things you wanted to do then this the opportunity. Up-skilling ourselves, improving our fitness, spending time with family these are the things we always wanted to do. Life always comes to us with surprise gifts, blessings and of course hurdles which makes our lives even better.

We neither know how long will this pandemic last nor how long will this lockdown continue, but we can hope that this period will be over really soon. Optimist will always love to see the positive side of things and so if we look deeper we will realize the good things that we are experiencing at this point.

The environmental pollution levels have gone down drastically, rivers are cleaner than we have ever seen before, we are able to breathe fresh air again and a few endangered species have started to appear in few places. This makes us realize that apart from human beings other animals too have equal rights to live in this planet. Nature always has its own healing process but in our rat race to achieve more we forget that, what we are experiencing now is nothing but the collective karma to humankind! Mother Earth will come alive again and it will be more vibrant than ever before.

There is another aspect of this pandemic- a lot of business opportunities will come up. Make in India and manufacturing sectors will be boosted up far more. Every country from now on will try to be self-reliant. The change in consumer behavior will open up new avenues for businesses. Fintech, digital payments, e-commerce will experience a big boom in the days to come. Medical infrastructure will gain more importance than ever before.

Most importantly this lockdown has provided us a huge lesson- no work is small, everyone has its own importance starting from a rag-picker to a top notch celebrity. Today, we should all be grateful to the doctors, paramedical staffs and nurses who are saving millions of lives in this pandemic.

Life always allows some crisis to occur, before revealing its full bright side. As every cloud has silver lining so does everything in life, for a period we are having a tough time but we will be victorious one day. This crisis will give us the zeal to put the best in whatever we do as don’t know when our day is. This Corona Virus will take away a lot of things from us, but in return it will provide us a life time lesson that will help us in the long run.