A look at the map of India shows that oil wells are spread from Digboi in Assam to the sea areas of Mumbai (Mumbai High) and the coasts of Gujarat. Despite this, a big question often arises in the mind of the common man: If oil is present in our own country and sea, then why do we have to look towards Arab countries or Russia for its supply? Why does India import 85% of its crude oil needs from abroad, and are our domestic wells running dry? Let us understand this difficult puzzle in very simple words.
Huge gap between domestic production and growing consumption
The history of crude oil production in India is quite old; But, the basic problem is that our domestic production is very less compared to our ever increasing demand. At present, India is the third largest consumer of oil in the world. Millions of barrels of oil are needed every day to keep our refineries running and the wheels of the country’s vehicles turning. The oil extracted from India’s own land and sea oil fields meets only 15 to 20 percent of our total consumption. This is why we depend on the global market to fulfill the remaining 80 to 85 percent of our needs.
Discovery of new reserves and challenge of limited resources
It is not that there is any dearth of efforts to find oil in India; But, crude oil exploration in itself is an expensive and uncertain task. Companies like ONGC and Oil India are continuously drilling new wells across the country, yet the pace at which new reserves are being discovered lags far behind the pace of our increasing consumption. Older oil fields like Mumbai High are now reaching the final stages of their production cycle; As a result, the cost of extracting oil from these places is increasing, while production levels are gradually decreasing. In sharp contrast, in countries like Iraq or Saudi Arabia, extracting oil proves to be a much easier and less expensive task.
Oil quality and refinery technical requirements
The nature of crude oil extracted from the land of different countries is not the same. Some varieties of oil are called “sweet” (low in sulfur), while others are called “sour” (high in sulfur). India’s modern refineries—which now produce BS-VI compliant petrol and diesel—require a specific blend of crude oil. Often, the quality of oil produced in the country does not meet the standards required to produce high-grade fuel. As a result, to utilize their full capacity and produce fuel conforming to international standards, refineries import different grades of crude oil from abroad.
Economic Equations and Calculation of Strategic Oil Purchases
Importing foreign oil is not just a necessity; In fact, it often also brings considerable economic benefits. In recent times—particularly during the Russia–Ukraine conflict—India has purchased oil from Russia at significant discounts. When crude oil is available in the international market at prices lower than the cost of production in the country, or at competitive rates, it proves beneficial for the national economy and foreign exchange reserves. Furthermore, to maintain strong diplomatic relations with the Gulf countries and safeguard its energy security, India will have to remain an active participant in the global oil trade.
Preparing for the Future: Importance of Strategic Reserves
India recognizes that complete dependence on imports is risky in itself; Therefore, the government is setting up ‘strategic petroleum reserves’—that is, emergency oil reserves. Under this initiative, oil is stored in huge underground tanks in places like Visakhapatnam and Mangaluru, which serves as a vital resource in case of war or supply disruption. Also, the government is giving priority to ethanol blending and promoting electric vehicles with an aim to reduce the country’s crude oil import bill. Unless India develops fully viable alternative ways to meet its energy needs, dependence on foreign oil will remain an inevitable necessity.