Strategic Oil Reserve Programme

In News

• India plans to release crude oil from its emergency stockpile to cool international oil prices.

Rationale Behind This Step

• The decision has come after the US has urged some of the world’s largest oil-consuming nations, including China, India and Japan to release crude oil from their respective reserves in order to bring down global prices of crude oil.
• The request came after the US government was unable to persuade OPEC+ to pump more oil with major producers arguing the world was not short of crude.
• India’s Concerns:
  • India stated that the crude oil release will take place in consultation with these countries, which are also major global energy consumers. 
  • India has repeatedly expressed concern at supply of oil being artificially adjusted below demand levels by oil-producing countries, leading to rising prices and negative attendant consequences.
  • At the same time, in a bid to control fuel prices’ inflationary trends, excise duty on petrol and diesel had been reduced.

Challenges

• India is the world’s third-largest oil consumer and importing nation and has been severely impacted by the relentless rise in international oil prices.
• These high prices undermine the global economic recovery in the backdrop of COVID.
  • High prices are starting to produce unwanted inflation and undermine recovery from the COVID-19 pandemic.
• OPEC and other ally producers — including Russia, known collectively as OPEC+ — have been adding around 4,00,000 barrels per day to the market on a monthly basis, which many see as not sufficient to cool prices that had been rising as demand returns to pre-pandemic levels.

Benefits of Oil Release

• It will make the pricing of liquid hydrocarbons reasonable, responsible and be determined by market forces. 
• It will also help in supply of oil being artificially adjusted below demand levels by oil producing countries, leading to rising prices and negative attendant consequences.

Strategic Petroleum Reserves (SPR) in India

• These are huge stockpiles of crude oil for emergency situations.
• SPRs are strategic in nature and the crude oil stored in these reserves will be used during an oil shortage event, as and when declared so by the Government of India.
• India holds about 26.5 million barrels of oil in its reserves.

Image Courtesy: BS 

Need for SPR 

• The Gulf War in 1990 led to a sharp rise in oil prices and a huge increase in India’s imports. 
• Post-1991 Indian economic crisis, foreign exchange reserves were very low and India continued to be affected by volatility in oil prices. 
• In 1998, former Prime Minister Atal Bihari Vajpayee administration proposed the creation of petroleum reserves as a long-term solution for managing the oil market. 

Phases of the Strategic Petroleum Reserves (SPR) Programme

Image Courtesy: D Pradhan 

Conclusion

• India strongly believes that the pricing of liquid hydrocarbons should be reasonable, responsible and be determined by market forces.

Source: TH