One area in which India can definitely use the lower oil prices to its advantage is to stock up on the commodity for future use. Like many other countries, India maintains strategic petroleum reserves (SPR), which is an inventory of oil for emergency purposes. To mitigate supply-side risks and cover for vulnerability to external oil shocks, India holds an emergency oil stockpile in underground salt caverns, which can provide around 4.5 days of import cover. There is additional capacity for five days of oil import cover, which must be filled up at this time when oil prices are at historic lows. Indian petroleum refineries hold an additional 65 days of import cover.
India has been delaying the start of phase two of its SPR plans, which was to add another 12 days of oil storage capacity. This was to be done in partnership with either ADNOC (Abu Dhabi) or Saudi Arabia’s Aramco. It is probably the right time now to get this off the drawing board.
Alternatively, we can also look at options outside India. We could persuade the Sri Lanka government to kick-start the utilisation of oil storage facilities at Trincomalee. This could be done in a mutually beneficial manner. We could also shop around for storage space in Oman (Ras Markaz) or the United Arab Emirates (Fujairah). Right now, we are in a bizarre situation where the storage space is more expensive than the commodity itself, but things will revert, and any investments now will help India in the long run when oil prices rise again.
Finally, the private sector should look at this as an opportunity to lock into long-term contracts with oil suppliers based at current prices. The government can help the struggling Indian airline industry, for instance, by providing it lines of credit to enter into or renegotiate oil contracts.
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