India’s crude oil strategy: balancing energy security and global diplomacy

Dr Hirak Jyoti Gogoi

&

Madhurjya Saikia

(madhurjyatu15@gmail.com)

India is the third-largest importer and consumer of crude oil in the world, after the U.S. and China.  However, India’s domestic oil production is very low, as it has limited oil reserves. This makes the country heavily dependent on imports for its energy needs—around 85–90% of total crude oil consumption is imported. Despite low production, India ranks fourth globally in refining capacity, thanks to large refineries like Indian Oil Corporation (IOC), BPCL, and HPCL. India not only refines crude for domestic use but also exports a significant amount of refined petroleum products, such as diesel, petrol, and aviation fuel.

India's crude oil production has recently been declining, with a fall to approximately 28.7 MMT in FY25 and a 12.3% self-sufficiency rate. Major production comes from state-owned companies (PSUs) and private ventures, with a significant portion from offshore locations, though onshore states like Rajasthan and Assam also contribute. Assam is India’s oldest oil-producing state, with oil-bearing strata stretching 320 km across the Brahmaputra Valley in Upper Assam. Its oilfields, though remote and inaccessible, supply crude to refineries at Digboi, Guwahati, Bongaigaon, Noonamati, and Barauni. Major fields include Digboi (India’s oldest, in Tipam Hills, Dibrugarh), Naharkatiya (on the Burhi Dihing’s left bank), and Moran-Hugrijan, located about 40 km southwest of Naharkatiya.

Crude oil prices are mainly driven by global supply and demand, which are influenced by factors like economic growth, geopolitical developments, and decisions by organizations such as OPEC. In India, although global prices form the base, oil marketing companies (OMCs) revise daily fuel prices by aligning per-barrel rates with international benchmarks. The price of oil, or the oil price, generally refers to the spot price of a barrel of benchmark crude oil—a reference price for buyers and sellers of crude oil such as West Texas Intermediate (WTI), Brent ICE, Dubai Crude, OPEC Reference Basket, Tapis Crude, Bonny Light, Urals oil, Isthmus and Western Canadian Select (WCS). The main goal of OPEC was to coordinate among major oil-producing countries. Think of it this way: if the global oil supply increases, then crude oil prices fall. When prices fall, oil-producing countries lose revenue. So, while individual countries (like Saudi Arabia) want to increase their own production to earn more profit, collectively they all want to keep production limited so that prices remain stable and high enough to benefit everyone. Balancing this push and pull is the key function of OPEC+.

Rising crude oil prices have a major impact on India’s economy because the country depends heavily on imported oil. When global oil prices increase, India’s import bill also rises, which widens the current account deficit (CAD) and puts pressure on the country’s foreign exchange reserves. The government often tries to reduce the burden on consumers by giving fuel subsidies, but this raises the fiscal deficit and adds financial stress. To balance the budget, the government might also raise taxes, which further increases inflation. Higher crude prices make petrol, diesel, and transport more expensive, which pushes up the prices of almost all goods and services. This kind of cost-push inflation reduces people’s purchasing power and increases the overall cost of living. Businesses also suffer because of higher production and transport costs, leading to slower economic growth. According to the Reserve Bank of India (RBI), a big increase in oil prices can reduce growth and raise inflation at the same time. Moreover, when India’s oil import bill rises, more dollars are needed to pay for imports, causing the rupee to weaken. This depreciation makes all imports, including crude oil, costlier. Overall, rising crude oil prices create inflation, weaken the rupee, and slow India’s economic progress.

India’s crude oil diplomacy is a strategy to ensure energy security for its highly import-dependent economy. It focuses on diversifying oil suppliers, building strong international partnerships, and using India’s position as a major oil consumer to its advantage. The Arab Gulf countries, like the UAE, Saudi Arabia, Kuwait, Iran, Iraq, and Yemen, hold large oil reserves. Among them, Iraq is currently India’s biggest oil supplier, even ahead of Iran and Saudi Arabia. As global oil demand rises and rivalries grow among oil-producing Islamic nations, India has wisely stayed neutral, maintaining good relations with all Gulf countries and continuing to use oil from the western region. India’s balanced approach between Russia and the USA is also very important for its crude oil diplomacy. To strengthen its energy security, India must diversify its crude oil sources, find new suppliers, and maintain a balance of power in global relations. Considering India’s growing economy and increasing energy needs, proper crude storage management is also essential to ensure stable and secure oil supplies for the future. Maintain good and balanced relations with all major energy partners like the U.S., Russia, and Gulf countries. Also, expand India’s oil storage under the Strategic Petroleum Reserve programme to ensure enough supply during emergencies.