India must urgently bolster its strategic crude oil reserves and reverse the growing reliance on imported crude, according to a new report by EY that warns petroleum remains a key external risk for the domestic economy. The report, titled India's petroleum economy: Coping with vulnerabilities, highlights that the country's dependence on imported crude has risen from 55% in FY1999 to slightly above 90% in FY26.
Dependence on Imports Hits 90%
Domestic crude production has declined from a peak of 35.9 million metric tons in FY12 to 26.0 million metric tons in FY26, while consumption of petroleum products surged from 90.6 million metric tons in FY1999 to 243.2 million metric tons in FY26. The report notes that the contribution of domestic crude production remains limited, making the country highly vulnerable to global price shocks and supply disruptions.
EY stated: "Going forward, India may need to augment its strategic crude oil reserves... Further, India may develop a detailed strategy for maintaining crude oil reserves which spells out the volume of reserves, strategy of purchases and releases from such reserves taking into account the relevant carrying costs."
Thin Buffer Stocks Compared to China
India's strategic crude oil inventories stand at only 21 million barrels, which suffices for about five days of consumption. In contrast, China holds 1,397 million barrels, according to data from the U.S. Energy Information Administration. The report recommends that "as soon as the global crude situation begins to normalize, India may start investing in building up its crude oil reserves."
Refining Efficiency Improves
On the positive side, EY notes that India's refining efficiency has improved significantly. The efficiency parameter rose from just above 0.95 in FY1998 to 1.27 in FY26, representing about a 33% improvement. The energy intensity of GDP has also fallen, which "augurs well for sustaining an energy-efficient growth at a reasonably high level for a relatively longer period."
The report highlights two structural features: high import dependence as a vulnerability, and domestic refining capacity as a strength. India's ability to refine imported crude and export refined petroleum products has increased over time, with the efficiency of producing petroleum products through domestic refining improving steadily.
Forex Pressures Mounting
Despite refining strengths, foreign exchange pressures are mounting due to a widening gap between the value of imported crude and exported petroleum products. Growth in domestic consumption of petroleum products stood at a compound annual growth rate (CAGR) of 3.9% over FY06 to FY26, compared with 2.1% for exports.
EY said the trend of dependence "needs to be reversed by emphasizing the exploitation of domestically available crude, while accelerating the shift towards greener options and other alternative sources of energy, including nuclear energy." The report also recommends that India continue to augment its refining capacity to further strengthen its position in the global petroleum product market.
