Geopolitical Tensions and Energy Markets

Recent tensions in West Asia have led to a fragile ceasefire between Israel and Iran, causing fluctuations in energy markets. The temporary calm has brought down Brent crude prices to $67 per barrel and decreased European gas prices, affecting Asian LNG rates. While markets are stabilizing, the underlying political tensions highlight the precarious nature of energy supplies.

India's Energy Security Challenges

• India's heavy dependence on foreign fuel makes it vulnerable to geopolitical conflicts. This is particularly concerning given the country's status as the world’s fastest-growing major economy and a significant contributor to global oil demand.
• China's robust oil inventory contrasts with India's limited strategic storage, which only covers eight days of imports. India's lack of storage infrastructure exposes it to risks in case of supply disruptions.

Strategic Petroleum Reserves (SPR)

• The US holds approximately 400 million barrels in strategic stocks, while China's reserves hold 286 million barrels. In contrast, India's SPR capacity is only 39 million barrels, with about 70% filled as of early 2025.
• India's recent diversification of crude oil imports, particularly from Russia, has provided some relief. Russian oil now accounts for 35-40% of India's daily crude imports, which helps mitigate the risks from potential disruptions through the Strait of Hormuz.

Vulnerability to Disruptions

India's high reliance on the Strait of Hormuz for crude shipments from the Middle East poses a risk. A prolonged blockade would severely impact India's energy supplies, although short-term reserves and storage might manage a 15-day disruption.

Natural Gas Supply Concerns

India's dependence on Qatar and the UAE for LNG, coupled with limited gas storage infrastructure, exposes it to significant risks. Unlike China, which has extensive gas storage facilities, India lacks insurance against supply disruptions.

Impact of LNG Supply Disruptions

• India imports 40% of its LNG from Qatar, making it highly susceptible to geopolitical tensions affecting gas supply routes.
• The blockade of the Suez Canal by Houthi rebels increases shipping times and costs, thereby impacting LNG affordability.

Future Strategies

• Developing commercial gas storage using depleted fields and salt caverns is crucial for mitigating supply risks and leveraging seasonal price arbitrage.
• Enhancing LNG supply agreements and diversifying import sources are necessary to secure India's energy future.