Amid the ongoing trade negotiations with the US to resolve the issue of 50 per cent tariffs imposed on India by President Donald Trump, a parliamentary committee has warned against India’s heavy dependence on crude oil imports, urging the government to speed up diversification of supply sources and strengthen risk management mechanisms in view of rising geopolitical risks.
89 per cent of crude oil requirements imported
The Public Undertaking Committee stated in the report, tabled last week, that India imports nearly 89 per cent of its crude oil requirements, which makes it vulnerable to global disruptions arising from conflicts, sanctions, civil unrest in oil-producing nations and disruptions in key shipping routes such as the Suez Canal and the Red Sea.
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Recent events, including the Russia-Ukraine war and tensions in West Asia, have highlighted the fragility of India’s energy supply chain. President Trump has imposed a 50 per cent tariff on Indian goods, out of which 25 per cent are reciprocal tariffs, and the rest are a “penalty” for New Delhi’s purchase of Russian oil, which the US claimed is being used by Moscow to fund its war in Ukraine.
The committee, in its recommendations, urged the Ministry of Petroleum and Natural Gas (MoPNG) and state-run oil companies to intensify efforts to diversify crude oil sourcing both geographically and contractually, bolster strategic petroleum reserves and develop alternative import routes.
Institutionalising risk management tools
It also called for institutionalising risk management tools such as hedging and flexible term contracts to safeguard energy security against future geopolitical shocks.
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“India meets about 89 per cent of crude oil requirements through imports and given the current geopolitical events such as Russia-Ukraine conflict, Israel-Hamas conflict, sanctions on some of the oil producing countries (like Iran, Venezuela, Russia), political/civil unrest/strikes in any oil producing country anytime, India could face risk of crude oil import uncertainty, which in turn could hurt smooth supply of crude oil and its prices,” the panel said.
Vulnerability from global events
It further stated that the oil and gas sector faces several environmental concerns due to the nature of its operations, which include greenhouse gas emissions, air and water pollution, and waste management.
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“Recent global events, including the Russia-Ukraine conflict and tensions in the Middle East, have underscored the vulnerability of India’s energy supply chain and its dependence on international trade flows,” its report said.
“In view of this, the Committee recommends that MoPNG and CPSUs (central public sector undertakings) should intensify efforts to diversify crude oil sourcing both geographically and contractually, strengthen strategic petroleum reserves, and enhance alternative import routes.” Further, “risk management practices, including hedging and flexible term contracts, must be institutionalized to safeguard India’s energy security against future geopolitical shocks,” it added.
Infrastructural challenges facing India
The report highlighted the internal challenges faced by the sector, including ageing oil fields, delays and cost overruns in projects, rising land acquisition costs, and crude production not keeping pace with capital expenditure. Environmental concerns such as greenhouse gas emissions, pollution and waste management were also pointed out.
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While acknowledging steps taken by companies such as Indian Oil Corporation and ONGC Videsh to diversify supplies, the committee said sanctions, financial volatility and regulatory hurdles in host countries continue to constrain overseas investments.
“These issues not only affect India’s energy import bill but also impede the ability of CPSUs to secure overseas exploration and production assets, thereby limiting long-term energy security,” it said.
Close coordination between MoPNG and MEA
It recommended closer coordination between MoPNG and the Ministry of External Affairs to strengthen diplomatic engagement with oil-producing nations, secure favourable investment terms, and address taxation and regulatory issues faced by Indian companies abroad.
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“The Committee recommends that MoPNG should work closely with the Ministry of External Affairs (MEA) and other relevant government agencies to strengthen diplomatic engagement with oil-producing nations, secure favourable investment terms, and address taxation and regulatory hurdles faced by CPSUs abroad,” the report said.
“At the same time, CPSUs should adopt digital and enterprise risk management frameworks to continuously assess geopolitical vulnerabilities, ensuring a more resilient and sustainable energy strategy for the country.”
(With agency inputs)
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