Why India Needs Bigger Oil Reserves and Less Imported Energy: Lessons from Global Trade Shocks
Former RBI Governor C. Rangarajan said India must build reserves of critical commodities, especially crude oil, and reduce its dependence on imported energy.
He spoke on 31 October 2026 at the 16th convocation (degree-giving ceremony) of the ICFAI Foundation for Higher Education in Hyderabad.
He said recent geopolitical tensions (conflicts between countries), including the US-Iran conflict and the disruption of shipping through the Strait of Hormuz, show how outside shocks can hurt India's economy.
He called for a changed development strategy: produce more at home in strategically important sectors, keep buffer stocks of key goods, and focus on innovation.
He added that self-reliance should mean making goods that meet global quality standards, not simply replacing imports with costlier or poorer local products.
Larger reserves, he argued, help a country absorb short-term supply shocks that would otherwise push up prices (inflation) and widen trade gaps.
India's Strategic Petroleum Reserves (SPR)
Strategic Petroleum Reserves are emergency stocks of crude oil that the government keeps for a crisis. They are used only when normal supply breaks down, for example because of a war, sanctions or a blocked sea route. India stores this oil in huge underground rock caverns on its coast. Think of the SPR as the country's emergency grain store, but for oil.
Rangarajan's call to "build reserves of critical commodities such as oil" is, in practice, a call to fill and expand India's SPR caverns faster. A bigger, fuller SPR lets India keep refineries running for longer if a route like the Strait of Hormuz is blocked.
India's Energy Security and Import Dependence
Energy security means a country can always get the energy it needs, at a price it can afford. For India, the biggest weak point is crude oil. India buys close to nine out of every ten barrels of crude it uses from abroad. So a war, sanctions or price jump far away quickly affects petrol, diesel and cooking gas prices at home.
Rangarajan argued that India's growth problems in 2026 come more from outside shocks than from weaknesses at home. Cutting dependence on imported energy, through domestic production and clean energy, is the long-term answer he pointed to.
Balance of Payments (BoP)
The Balance of Payments is a record of all money that flows between India and the rest of the world in a period, usually a quarter or a year. Its current account records trade in goods and services, plus money sent home by Indians working abroad. When India pays out more on this account than it earns, the gap is called the current account deficit (CAD). Crude oil is India's single biggest import item, so oil prices have a direct effect on the CAD.
Rangarajan noted that supply shocks can trigger inflation or trade imbalances. A trade imbalance shows up in the BoP as a wider current account deficit. Lower energy imports would make India's BoP less sensitive to every jump in world oil prices.
- Speaker: C. Rangarajan, former RBI Governor
- Event: 16th convocation of the ICFAI Foundation for Higher Education, Hyderabad, 31 October 2026
- India's crude import dependence: 88.7% (2025-26); about 89.1% in April to June 2026 (record, provisional)
- SPR Phase I: 5.33 MMT at Visakhapatnam (1.33), Mangaluru (1.5) and Padur (2.5)
- SPR Phase II: 6.5 MMT at Chandikhol (4) and Padur (2.5), approved July 2021, PPP model
- SPR fill level reported in 2026: about 64% of capacity
- IEA members: oil stocks of at least 90 days of net imports; India is an IEA association country
- India's CAD: about 0.6% of GDP in 2025-26
- US$10 per barrel change in oil price: about US$15 billion change in annual current account balance (one estimate)