India likely to prioritise strategic petroleum reserves as ceasefire sets in: Economists

The government has already approved the next phase of SPR expansion — a new 2.5 MMT capacity facility at Padur.

As the ceasefire between India and Pakistan sets in, there is a sense that the Indian government could consider further strengthening of strategic petroleum reserves and contingency mechanisms.

“International crude oil prices are volatile, so every country maintains some reserves — generally up to 120 days. But in India, we still have not reached that level of storage capacity. Hence, we need to build up reserve facilities,” said Hari Nayudu, Economist at National Institute of Public Finance and Policy (NIPFP).

The economist’s remarks come in the backdrop of concerns raised by the government over instances of panic fuel buying during the recent heightened tensions with Pakistan. Long queues were witnessed at fuel pumps, especially across northern India, during the standoff. Prompt intervention by fuel retailers and the government, through assurances of adequate supply, helped ease consumer anxiety and restore normalcy.

“War may increase demand — by panic buying and hoarding. These need to be strictly addressed by ensuring access and uninterrupted supply chains,” Nayudu said.

Typically, countries have strategic petroleum reserves for up to 120 days, while India has reserves for around 74 days. India imports 85 percent of its oil requirements.

“Oil reserves are of paramount importance. In case of an oil shock, you will have to depend on oil with you for running your economy smoothly. We aspire to go to 90 days (of oil reserves). As of now, we are not at the level that some of the larger countries such as the US are,” said Prashant Vasisht, Vice President and Co-Head, Corporate Ratings at ICRA.

The petroleum reserve status

Of the existing Indian reserves of 74 days, Indian Oil Corporation (IOC) maintains stocks for 40–42 days while the government’s special purpose vehicle, Indian Strategic Petroleum Reserves Ltd (ISPRL), holds crude oil for 9.5 days. The remaining stockpile is managed by state-run fuel retailers Bharat Petroleum and Hindustan Petroleum. ISPRL currently operates SPR facilities with a total capacity of 5.33 million metric tonnes (MMT) at three locations — Visakhapatnam (1.33 MMT) in Andhra Pradesh, Mangalore (1.5 MMT), and Padur (2.5 MMT) in Karnataka.

Nayudu said the government holds pre-emption rights over all oil and gas reserves during emergencies, and can compensate producers with nominal amounts if required. Pre-emption rights refer to the legal authority of the government to take control of privately held oil and gas supplies during a crisis or national emergency, ensuring continued access to energy resources essential for the economy and national security. This provision allows the state to prioritise public interest over commercial agreements temporarily.

The evolving security posture goes beyond energy. According to M Govinda Rao, economist and former member of the 14th Finance Commission, “Emergency buying is to ensure adequate supplies in case a war drags on. Now that there is a ceasefire, there may not be any urgency.”

Amid efforts to bolster preparedness, the government has approved the next phase of expanding its strategic petroleum reserves, which includes setting up a new 2.5 MMT capacity facility at Padur.

India’s energy security approach is also supported by the diversification of crude sourcing. Public sector oil companies have reduced dependence on single regions and now procure crude from the Middle East, Africa, and the Americas.

Vigilance needed 

Despite the ceasefire, economists caution that the government must remain vigilant. Sustained geopolitical tensions, even without open conflict, can strain inflation, fiscal policy, and economic sentiment.

“While immediate panic buying by people has subsided, sustained geopolitical instability could lead to further disruptions in fuel availability and energy supply chains,” said Lekha S. Chakraborty, Professor at the NIPFP.

“The emphasis now must be on building strategic buffers — in oil, arms and other critical sectors — not just to react to war but to stay resilient in peacetime,” she noted.

Defence planning

India’s defence import profile is shifting. The Stockholm International Peace Research Institute (SIPRI) data shows that arms imports declined by 9.3 percent from the 2015–2019 period to 2020–2024, as the country scaled up its domestic manufacturing. In 2023–2024, India’s defence production hit a record Rs 1.27 trillion.

Historically one of the world’s largest arms importers, India accounted for 8.3 percent of global arms imports between 2020 and 2024, second only to Ukraine. Russia remained the top supplier with a 36 percent share, followed by France, Israel, and the US.

In a notable policy push, 75 percent of the capital acquisition budget for 2025–2026 has been earmarked for domestic purchases.

“Thanks to our indigenisation of defence equipment — except some big items — we can produce most of the things domestically now,” said Nayudu. “The domestic production facilities need to be optimally utilised first to avoid imports and save forex.”

Adding to this momentum, India inaugurated a new BrahMos missile integration and testing facility in Lucknow on May 11, marking a significant milestone in boosting local defence capabilities. "BrahMos is one of the world's fastest supersonic missiles; it isn't just a weapon but a message of India's deterrence," said Defence Minister Rajnath Singh after the launch of India's biggest BrahMos testing facility.