India’s Oil Lifeline: A Strategic Partnership Takes Shape

The recent visit by Prime Minister Narendra Modi to the United Arab Emirates (UAE) has yielded significant benefits for India’s energy security. Two key Memoranda of Understanding (MOUs) were signed on strategic petroleum reserves and LPG supply, marking a major development in India’s energy landscape.

India’s vulnerability to oil import disruptions was starkly exposed during the ongoing US-Iran conflict. Supplies via the Strait of Hormuz have been disrupted, leading to price volatility and shipping bottlenecks that leave India’s economy precariously dependent on imported crude. The UAE, one of India’s top five crude suppliers, has emerged as a crucial partner in addressing this challenge.

The agreements signed during PM Modi’s visit have far-reaching implications for India’s energy security strategy. By taking advantage of the UAE’s strategic location and its decision to increase oil production outside OPEC+, India can now store oil at Fujairah, reducing its dependence on the Strait of Hormuz. This development is particularly significant given India’s existing capacity constraints in storing crude oil.

The potential storage of up to 30 million barrels of ADNOC crude oil in Indian strategic petroleum reserves is a major step forward. Facilities in Vishakhapatnam and Chandikol, Odisha, will enhance India’s emergency crude storage capabilities and provide greater flexibility in crude procurement and inventory management.

However, India’s strategic oil reserves fall short compared to other major economies worldwide. While the agreements are a step in the right direction, they underscore the need for more concerted efforts to build up these reserves. As Sourav Mitra, Partner at Grant Thornton Bharat, notes, “The value of strategic reserves lies in creating room for thinking.” Building larger and more collaborative reserve arrangements can reduce India’s exposure to short-term volatility and provide policymakers with more space to respond during crises.

The significance of such partnerships is increasing due to growing uncertainty in the global energy landscape. Disruptions today can emerge from geopolitical events with little warning, making strategic reserves not just emergency storage assets but strategic instruments that strengthen national energy resilience.

India’s LPG supply agreements are equally crucial, but they present different challenges for its energy security strategy. The country’s dependence on imports has been exposed during the US-Iran conflict, highlighting the need for more diversified supplies.

A long-term LPG supply agreement with ADNOC Gas Limited and Indian Oil Corporation Ltd (IOCL) addresses this challenge. However, it also underscores the importance of commercial storage arrangements and optimized crude stocking strategies to mitigate risks associated with LPG imports.

As India continues to navigate its energy landscape, these agreements represent a crucial turning point in its journey towards greater energy security and supply diversification. The strategic partnership with the UAE has set a precedent for future collaborations, demonstrating that even in an era of growing uncertainty, it is possible to build resilience through buffers and strategic instruments.

The next steps for India’s energy security strategy will determine whether this partnership with the UAE marks a new era of energy cooperation or merely a fleeting victory in an ongoing battle against uncertainty.