India is moving to a commercial storage model for its strategic petroleum reserves as infrastructure expansion faces significant delays. By partnering with private and international producers, the government aims to buffer energy supplies without burdening the national budget. This pivot is essential as geopolitical volatility threatens the country’s high reliance on oil imports.
India is rethinking how it manages its strategic petroleum reserves, shifting from a government-led model to a more flexible, commercial approach. Currently, India has a strategic storage capacity of 5.33 million tonnes located in Visakhapatnam, Mangaluru, and Padur. While this capacity is vital for national energy security, it covers only about one week of consumption. With India importing over 85 percent of its crude oil, this thin buffer leaves the domestic economy exposed to sudden supply shocks caused by geopolitical tensions.
Infrastructure Delays Cloud Expansion Plans
The government had approved a second phase of expansion in 2018, aiming to add 6.5 million tonnes of storage capacity. However, these plans have faced years of slow progress and administrative hurdles. The expansion project at Padur only reached the contract stage in 2025, while the proposed 4-million-tonne facility in Chandikhol is still in the planning phase. These delays mean the country remains far from its goal of increasing strategic reserves to match its growing energy needs.
Beyond just building new facilities, history shows that existing caverns have often remained underused. Internal audits indicate that capacity utilization fluctuated between 8.74 percent and 58.41 percent from 2018 to 2024. This idle space suggests that opportunities to stock up on oil during periods of lower global prices were missed, partly due to the high cost of buying and storing crude oil solely through government funds.
A New Commercial Model for Energy Security
To overcome these financial and operational hurdles, policymakers are turning toward public-private partnerships. A key part of this strategy is the model already used at the Padur facility, where the government partners with international players like the Abu Dhabi National Oil Company. Under this arrangement, international producers can store their crude in Indian caverns. This setup allows India to offset operational costs while maintaining the 'right of first refusal,' meaning India gets the first chance to buy the stored oil if a supply emergency occurs.
This commercial pivot now extends to overseas storage agreements, such as the framework established with the UAE in May 2026. By counting foreign-held stocks as part of its emergency buffer, India is expanding its defenses without needing to build new, expensive tanks immediately. This strategy helps manage the fiscal burden while ensuring that state-owned oil marketing companies have access to emergency supplies. For investors, the success of this model will depend on the government's ability to finalize these commercial partnerships quickly and manage the inventory effectively as global energy prices continue to fluctuate. The next key update will be the speed at which new storage agreements are signed and the progress on the long-pending Chandikhol project.