Entrapment: America’s Game Plan To Store India’s Oil

 

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Is it safe for India to store its crude oil in another country halfway around the world? 

Empire Diaries Desk

New Delhi, July 22, 2020: In what could become a major blow to India’s mission to become a self-reliant nation, the United States – which is halfway around the world from Indian shores – is likely to soon start storing or holding on its own land a significant portion of crude oil belonging to India.

On July 17, America struck a preliminary deal with India to that effect, according to which New Delhi would be looking to store a section of its crude oil in the US as part of a strategy.

The MoU was signed between India’s oil minister Dharmendra Pradhan and US energy secretary Dan Brouillette via an online energy partnership meet.

The US has giant, underground oil storage facilities in the two states of Texas and Louisiana. These highly secured facilities are called US SPRs or US Strategic Petroleum Reserves. As part of the July 17 US-India agreement, India is all geared up to permit the US to store its crude oil in one or more of these facilities.

 

THE SMALL ADVANTAGES

If India goes ahead with executing the deal with the US, then while it will gain on certain fronts, those advantages will be massively dwarfed by the negatives of such an arrangement.

The first obvious positive outcome of the deal is that India will technically get access to America’s vast crude oil banks right at the time when India’s own oil reserves are full and brimming.

After oil prices crashed in April to under $20 per barrel at one stage due to pandemic-induced lockdowns, there has been an oil glut in the market. Many countries like India have been getting caught in a problematic situation: there’s plenty of cheap, crude oil in hand, but there’s no place to save it since the limited domestic strategic reserves are already full.

In such a situation, it becomes a welcome stop-gap solution when another country – with proven experience in storing phenomenal quantities of crude oil – steps in and offers to help store that excess Indian oil for which there’s no place in India for the time being.

India’s own SPRs or crude oil facilities are in Visakhapatnam (Andhra Pradesh), Mangalore (Karnataka) and Padur (Karnataka), while more facilities are coming up in Chandikhol (Odisha) and Bikaner (Rajasthan).

These facilities are owned and managed by the ISPRL (Indian Strategic Petroleum Reserves Limited). It is an Indian company that is a subsidiary of the OIDB (Oil Industry Development Board), which is controlled by India’s petroleum and natural gas ministry.

The ISPRL’s reserves are estimated to have a storage capacity for the country that would last 10 days at the most. These reserves apart, India also has a number of crude oil refineries. Separately, these oil refineries have a storage capacity that would last 65 days.

Apart from the immediate problem of ‘where-to-store-our-excess-oil?’, India’s energy officials believe keeping some of its crude oil in America could come in handy during unforeseen events or emergencies. To take a hypothetical example, let’s say India is unable to access the oil stored in its own strategic reserves due to some disruptions caused by natural causes or due to some kind of unforeseen interference from a hostile neighbour.

In such a scenario, India would simply call on the US to release the much-needed oil stored there, and ship it across to end the demand crisis in India.

That benefits apart, buying plenty of oil for cheap and storing that in America will also give India an advantage when prices shoot up. If the crude oil prices skyrocket in the months and years to come following last April’s epic crash, India can simply call on the US to release its oil that had been purchased for cheap and stored for such scenarios.

 

THE BIG DISADVANTAGES

But then a close look at the disadvantages of the storage arrangement literally exposes the deal as too dangerous and alarming from India’s point of view – especially because India is a country that buys as much as 80% of the crude oil that it requires from abroad.

First, let’s understand the smaller worry. With various countries around the world getting caught up in geopolitical flare-ups, it is always a concern if a country’s vital energy resources are stored in an immensely faraway location.

In tranquil times, it needs oil shipments from the US to reach Indian shores about a month’s time – which is a pretty long time considering that India’s own oil reserves, as discussed before, would last no more than 10 days.

Now imagine a situation where global geopolitical tussles break out, and the long and meandering shipping routes between the US and India get exposed to those battlefields.

In such cases, with the routes jammed by unforeseen crises or at least dangerously exposed to them, what’s the guarantee that India’s own crude oil will be able to smoothly arrive home all the way from the US?

Add to that, of course, a substantial rental fee that the US government would collect from India for storing its oil at high-security facilities.

The biggest worry for India, if America indeed starts storing India’s crude oil, is that the arrangement would rob New Delhi of its self-reliance drive on the energy front.

If vital energy resources owned by India get locked away underground in Texas and Louisiana, wouldn’t that give Washington, DC the leverage to hypothetically arm-twist or blackmail India in the future into agreeing to what it wants if the relationship turns sour?

America, which is easily the biggest and most powerful empire of our times, will straightaway be in a position to dominate India, dictate its policies or seek geopolitical favours or simply hold India’s own crude oil reserves at ransom against New Delhi in the hypothetical scenario of a bilateral break-up.

 

WAR ON INDIA’S SELF-RELIANCE?

The deal is extremely tricky for India and it comes just like two sides of a coin. On one hand, you get the advantage of letting the world’s biggest military powerhouse to store your oil and stay beside you as your resourceful ally on the diplomatic stage. India has been a buyer of crude oil from the US since 2017 and is among America’s regular crude oil customers.

On the other hand, that same military powerhouse gets directly into a position to dictate terms to you – in the event of things going wrong – because it has your vital resources right under its feet. In such a case, it could literally have you at its mercy.

In a year when the coronavirus pandemic and subsequent lockdowns are making people’s lives miserable in India and around the world, India’s drive to make the struggling society self-reliant is helping the public see light at the end of the tunnel.

But where would that self-reliance be if something as core and as precious as India’s vital energy resources is physically taken possession of by a faraway country halfway around the world?

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