Home / Politics / News /  The implications of releasing strategic oil

India on Tuesday announced that it will release five million barrels of crude oil from its strategic petroleum reserves in consultation with other big global oil consumers such as the US, China, Japan, and the Republic of Korea. Mint takes a look at the implications:

What triggered the strategic oil release?

India is heavily reliant on oil imports. In FY21, oil imports accounted for more than 85% of the total requirement. India has been pushing for more reasonable pricing of oil by producer nations and has been protesting against the supply manipulation by the Organization of the Petroleum Exporting Countries and its allies, known as Opec+, aimed at propping up prices. High oil prices impact raw material costs for businesses and affect competitiveness as some petrochemicals refined from crude oil are the basic building blocks in a host of industries. Besides, higher prices forced the government to cut taxes on petrol and diesel.

Will it lead to decline in oil price?

For the release of oil from strategic reserves to have a meaningful impact, all participating nations should announce the extent of the release and take coordinated action. The 50 million barrels that the US would release from its reserves is over the “next several months". Indian authorities are awaiting concrete plans from other nations. Japan too has confirmed that it will release “a few hundred thousand kilolitres" of oil from its national reserve, but the timing is yet to be decided. The move sends a clear signal to producing nations about big buyers coming together, a person privy to discussions in the government said.

A high cost
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A high cost

What is India doing to tame oil price?

Ethanol blending is critical to reducing dependence on oil. The target is to achieve 20% ethanol blending of petrol by 2025. Also, a strong policy backing is given to facilitate transition from fossil fuel-based transportation to electric mobility. State-owned oil refiners are always on the look-out for contracts with new suppliers. Policy-makers are also eying hydrogen as a fuel.

Is India on a collision course with Opec?

India’s efforts to influence oil pricing with its status of a bulk buyer has seen little result till now because of cartelization. It has given clear signals of diversifying sources of crude oil, raising purchases from the US, and strongly backing transition to electric mobility. Supplies from Middle East nations have fallen in FY21  to  63.5%  of  India’s  total  imports from 69% in FY20, because of production cuts by Opec+. But India does not expect the release of oil to affect diplomatic ties with the Middle East.

How  does  cheap  energy  help  the  government?

The government led by Prime Minister Narendra Modi has benefited from low oil prices in the past, giving it the opportunity to raise taxes and find resources for various welfare schemes. The Modi government has also phased out most of the petroleum subsidies, cleaning up the government balance sheet, making oil prices pass through to consumers. High oil prices forced the government to cut taxes making it harder for it to balance budgets. Higher energy costs are also seen by experts as a deterrent to consumption.


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