What Israel-Hamas war means for India’s oil market

If the Gaza conflict drags on like the Russia-Ukraine war, India might need to generate import alternatives

By DTE Staff
Published: Friday 03 November 2023

The Israel-Hamas war in Gaza has led to a destabilisation in oil production and affected world oil prices. This includes India, that imports 85 per cent of its oil supply, and is the world’s third-largest oil consumer.

Around 60 per cent of India’s oil comes from the Middle East, which means any upheaval in that region is a matter of concern. India’s renewable energy has been commendable but the nation still relies heavily on fossil fuels. About 70 per cent of India’s public sector refineries’ oil imports is through term contracts while the rest are spot purchases.

If the war does not continue beyond the duration of India’s term contracts with suppliers, everything should be fine. But if the Gaza conflict drags on like the Russia-Ukraine war, India might need to generate import alternatives.

Many countries have their own strategic reserve plans to secure energy supplies in a crisis. All members of the international energy agency, which India joined as an associate member in 2017, are required to maintain an emergency oil reserve which can be released to stabilise prices in the event of any oil shocks.

India’s strategic petroleum reserve has enough crude oil supply for just 9.5 days. Private companies, on the other hand, have a cumulative reserve capacity of 64.5 days.

The US has the world’s largest reported reserve capacity of 727 million barrels, roughly amounting to 60 days of supply. China has 475 million barrels and Japan 324 million barrels.

At the G20 meet in New Delhi in September 2023, a memorandum was signed between India, the US, Saudi Arabia, UAE, France, Germany and Italy to develop the India-Middle East-Europe Economic Corridor (IMEEC) which would run through Saudi Arabia to Haifa port in Israel and onward to Greece.

This proposed network could significantly enhance regional energy security. Due to the inherent variability in generation of renewable energy, complete reliability on solar, wind and others to meet India’s huge and increasing demand for power seems far-fetched.

Energy transition through focus on renewable energy also faces other challenges in India. The major one is India’s dependency on China for renewable technologies and related important raw materials (such as rare earth minerals).

In addition, the market for renewable technology and related raw materials is very concentrated which could lead to severe energy security threats in case of geopolitical issues.

However, a focus on green hydrogen and cross border electricity trade (CBET) could address those issues. While green hydrogen technology is still in its infancy, CBET is already taking place with Bangladesh, Bhutan and Nepal.

Given all these challenges, short- or medium-term geopolitical disturbance like Gaza would not be expected to influence the momentum to India’s energy transition but India will definitely follow its own decarbonisation pathway.

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