India’s Crude Oil Diversification

• The Parliamentary Committee has urged closer coordination between the Ministry of Petroleum and Natural Gas (MoPNG) and the Ministry of External Affairs (MEA) to diversify crude oil sources.

• India imports ~89% of its crude oil needs, exposing it to global supply shocks.

What is Crude Oil?

• Crude oil is a naturally occurring, unrefined petroleum product composed of hydrocarbon deposits and other organic materials. It is a type of fossil fuel extracted from the earth’s crust.
• It is formed from the remains of ancient marine organisms (algae, bacteria) buried under sedimentary rock and subjected to intense heat and pressure over millions of years.

Why Crude Oil Diversification Is Critical for India?

• Energy Security Resilience: Heavy dependence on a few suppliers exposes India to geopolitical shocks. E.g. the Russia–Ukraine war (2022) pushed Brent crude above $120/barrel, straining India’s supply chain.
• Fiscal Stability: Oil imports drive current account deficit and inflation transmission. E.g. Petroleum imports form ~30% of India’s total import bill (MoPNG).
• Strategic Autonomy: Overdependence constrains foreign policy choices. E.g. Payment and insurance hurdles in Iranian and Russian crude trade post sanctions.
• Supply Route Security: Chokepoints heighten vulnerability to disruptions. E.g. Nearly 60% of India’s crude passes through the Strait of Hormuz, a high-risk corridor.

Challenges In Crude Oil Diversification

• Ageing Oilfields: Domestic production decline weakens bargaining power abroad. E.g. Crude output fell from 34.2 MMT (2018-19) to ~28.7 MMT (2024-25) despite higher capex.
• Price Volatility: Wide crude price swings complicate long-term contracting. E.g. Brent crude fluctuated between $70–$120/barrel (2021–24).
• Capex Inefficiency: Upstream PSU capex rose from ₹1.33 lakh crore (2020–21) to ₹1.70 lakh crore (2024–25) without output gains.
• Regulatory Uncertainty: Host-country tax and policy changes affect project viability. E.g. ICRIER notes regulatory risks reducing returns in Africa & Latin America assets.

Way Forward

• Diplomatic Coordination: Integrate the MoPNG with MEA for upstream asset access; E.g. targeted energy diplomacy with West Asia & Africa, which supply ~65% of India’s crude.
• Contract Flexibility: Expand hedging and flexible term contracts to manage volatility; E.g. spot-term mix helped India absorb the 2022 oil price shock without shortages.
• Route Diversification: Strengthen alternate import routes and storage buffers; E.g. expand Strategic Petroleum Reserves (SPR) beyond current ~39 MMT.
• Domestic Revival: Scale Enhanced Oil Recovery (EOR) and frontier basin exploration; E.g. EOR can raise recovery by 5–15% in mature fields (ONGC estimates).