India is set to begin stockpiling crude oil in American strategic reserves to shield itself from any supply disruptions arising out of geopolitical reasons, and allow the purchase and storage of a large quantity of crude when international oil prices plunge, officials said on Friday.

“We are in an advanced stage of discussions for storing crude oil in the US Strategic Petroleum Reserve to increase India’s strategic oil stockpile,” petroleum and natural gas minister Dharmendra Pradhan said.

This was one of the key outcomes of a virtual meeting between Pradhan and US energy secretary Dan Brouillette as part of the second US-India Strategic Energy Partnership (SEP) ministerial on Friday.

HT first reported the move on Thursday.

“The sides [India and the US] signed a memorandum of understanding (MoU) to begin cooperation on Strategic Petroleum Reserves operation and maintenance, including exchange of information and best practices,” an India-US joint statement, issued after the SEP meeting, said.

An Indian official said, requesting anonymity, that state-run Indian Strategic Petroleum Reserves Ltd (ISPRL) and other expert agencies involved in ensuring the country’s energy security may take this MoU forward and lay the road map for the collaboration with the US.

ISPRL operates three crude oil storage facilities in India with a combined capacity of 5.33 million tonnes, enough to meet the country’s energy requirement for 9.5 days.

While making his opening remarks at the second ministerial on Friday evening, Brouillette said, “We are beginning to collaborate on strategic petroleum reserves …” He said the two countries are collaborating on various other projects such as nuclear energy and energy efficiency in buildings and appliances.

“Apart from fostering bilateral energy trade and investments, we are seeking to align energy cooperation with energy security, expand energy and innovation linkages across our respective energy sectors, facilitate increased industry and stakeholder engagement as well as institutions of excellence from both countries,” Pradhan said.

He added bilateral energy trade between the two countries jumped significantly in just three years with bilateral hydrocarbons trade touching $9.2 billion in 2019-20, which is 10% of the overall bilateral trade.

Experts described the move to store crude in American strategic reserves as strategically significant since India imports more than 80% crude it processes. It had $101.4 billion crude import bill in 2019-20.

“The move will not only ensure uninterrupted energy supply in the event of geopolitical turmoil but also protect the country from unprecedented oil price volatility as was seen in 2008 that caused immense stress on the exchequer,” CA Vijay Kumar Gupta, former central council member of the Institute of Chartered Accountants of India, said.

International crude oil prices saw a record jump at $147 per barrel in July 2008, only to plunge to $40 a barrel again in December that year.

Anupam Manur, assistant professor at the think tank Takshashila Institution, said, “To keep a stockpile of crude oil in the US-based strategic reserves is an extremely beneficial move. If the idea of maintaining a strategic reserve of petroleum is to mitigate risk and ensure energy security, the objective can be truly achieved by diversifying our strategy. It is in India’s interest to geographically diversify the storage of our petroleum reserves. Beyond this, we should also look at getting into strategic partnerships with Oman, UAE, Sri Lanka, and Japan for our SPR [strategic petroleum reserve] storage strategy.”

Recently, due to supply exceeding demand, international oil prices plunged as low as $19.33 per barrel on April 21. Taking advantage of the low international prices, India filled its three strategic reserves to the brim with an average cost of about $25 per barrel.

International crude prices soon moved north after the produces’ cartel — the Organisation of the Petroleum Exporting Countries and its allies, particularly Russia (together OPEC+) — resorted to unprecedented output cut. Currently, benchmark Brent crude is hovering around $43 a barrel.

The US is increasingly becoming a key partner in India’s energy security. India has been importing oil and gas from the US since 2017. In just two years, the US has become one of the top 10 sources of crude oil imports for India.

“Ideally, India should have strategic reserves for at least 90 days. Although it is developing its own storage capacities, it can currently store 5.33 million tonnes (MMTs), or 39 million barrels of crude oil, in the three existing caverns,” a second official said requesting anonymity.

The three underground caverns are located in Vishakhapatnam, Mangalore and Padur. The government has approved the construction of two more strategic crude oil reserves with a total of 6.5 million tonnes of capacity at Chandikhol in Odisha and Padur in Karnataka. The proposed facilities will provide additional storage capacity for 11.57 days of requirements.