Context: Recently, the United States and India signed a memorandum of understanding that could result in India renting space in the US Strategic Petroleum Reserve for an overseas oil stockpile, after Australia did the same earlier this year.
Key Points

• India is moving to store oil in the US, and this is the first time India is creating an emergency reserve abroad.
• India, the world’s third largest oil consumer, is looking to take advantage of low prices and guard against possible supply disruptions.
• India and U.S. have signed MoU to begin co-operation on strategic petroleum reserves.
• “Our bilateral hydrocarbons trade has touched USD 9.2 billion during 2019-20, a 93 per cent increase when compared to 2017-18 figures
• “Teams from both our countries are working to develop high-efficiency technologies with low to zero emissions through carbon capture, utilisation and storage
• We are also in an advanced stage of discussion for storing crude oil in US strategic petroleum reserve to increase India’s strategic oil stockpile.
• The issue of who or how much oil will be brought for storage is still open. State-run refiners, which has term contract for US oil, could buy the oil.

Two Options

• First one is to lease caverns with crude stockpile for a specific period of time when prices are low.
• The second one is to lease capacity and buy oil separately as and when prices drop to a level expected to yield handsome arbitrage later.

Significance of this move

• The move comes amid India’s deadly border stand-off with China in Ladakh and signals of New Delhi and Washington deepening their strategic bonding beyond defence.
• The US has emerged as India’s 6th largest oil supplier since 2017.

Diversifying India’s Oil Imports

• India’s imports of Middle Eastern oil plunged to a four-year low in 2019.
• India imports about almost 85% of its oil needs and traditionally relies on the Middle East for the majority of its supplies, however, the region’s share of India’s crude shrank to 60% in 2019.
• The reason being a record output from the United States and countries like Russia offered opportunities for importers to tap other sources.

Road Ahead

• Co-operation in Strategic Petroleum Reserves Programme will further strengthen India’s energy security and pave the way for greater US investments and collaborations in India’s future SPR programmes.
• “The US-India Strategic Energy Partnership works to support sustainable energy development, in the 21st century and beyond. We collaborate on renewable energy, smart grids, and unconventional & clean energy sources research for the benefit of our people, now and in the future".