The near-closure of the Strait of Hormuz earlier this year shattered a long-held belief in Indian policy circles: that geographic proximity to the Persian Gulf somehow made large strategic petroleum reserves unnecessary. When US-Iran tensions choked the waterway through which 60-65% of India's crude imports flow, the vulnerability became impossible to ignore.
The government's response? A China-style policy proposal that would mandate domestic refiners to double their crude inventories from roughly 15 days of operational needs to 30 days of national consumption. This means holding an additional 150 million barrels of crude, requiring roughly Rs 60,000 crore in crude purchases alone at current prices and exchange rates, plus several thousand crore more for storage infrastructure. The proposal is still preliminary, but the financial implications for Indian refiners are already clear—and they're substantial.
Indian refiners currently maintain about 15 days of crude for routine operations. Doubling this to 30 days would tie up an enormous amount of capital.
IOCL's working capital stood at negative Rs 72,971 crore in FY25, BPCL at negative Rs 17,840 crore, and HPCL at negative Rs 38,573 crore.
The additional Rs 60,000 crore crude purchase requirement would force these companies to either reduce their efficient negative working capital models or significantly increase short-term borrowings. Reliance Industries, with positive working capital of Rs 52,995 crore, is better positioned but would still face a substantial increase in working capital needs. The oil and gas sector typically tries to keep working capital to a minimum because increases can negatively impact cash flows. This policy directly contradicts that principle.
The financing structure for this additional inventory remains unclear, but if it's debt-funded, leverage ratios across the sector would climb. Current debt-to-equity ratios show HPCL already at a concerning 1.40, IOCL at 0.77, BPCL at 0.74, and Reliance at a conservative 0.44. Assuming proportional allocation of the Rs 60,000 crore debt burden, HPCL's ratio could push toward 1.60—a level that might trigger credit rating downgrades and higher borrowing costs. Even Reliance, with the strongest balance sheet, would see its ratio climb from 0.44 to roughly 0.52.
Interest costs would swell significantly. Working capital loan rates in India currently range from 8-10% for strong borrowers at public sector banks to 15-28% from NBFCs.
For IOCL (Rs 1,880 crore) and HPCL (Rs 1,020 crore), the increases would be 255% and 471% respectively. These are simplified estimates, but they illustrate the magnitude of the impact.
Building new storage tanks is capital-intensive and could take several years to complete. The policy proposes giving refiners flexibility on where they build storage, with industry participants advocating for facilities near ports to enable easier trading in international markets. This references Singapore's extensive tankage network, which has helped establish the city-state as Asia's premier oil-trading centre.
The cost-benefit analysis of port versus inland storage is straightforward. Port-located tanks enable refiners to trade crude held in strategic tanks, potentially generating additional revenue streams and developing India into an oil trading hub similar to Singapore. Inland storage would be cheaper to build but would forego these commercial opportunities. The government should incentivise port-proximate development, as the ability to actively trade strategic inventories could partially offset the Rs 5,400 crore in additional annual carrying costs (including interest, storage, maintenance, insurance, and opportunity costs).
Beyond the financial metrics, the mandate would constrain operational flexibility. Currently, refiners can adjust procurement based on market opportunities, switch crude grades to optimize margins, and respond quickly to price volatility. Locking in 30 days of inventory reduces this agility. The oil and gas sector faces challenges in working capital management because price volatilities and supply chain disruptions draw attention away from inventory optimization. This policy would institutionalize that distraction.
The trade-off is between energy security and cost efficiency. Quantitatively, the additional annual carrying cost of Rs 5,400 crore must be weighed against enhanced security benefits.
The benefit-cost ratio works out to roughly 7.7:1, even after accounting for the additional carrying costs.
Industry participants are expected to resist the move due to the significant investment required. Success will depend on policy design that balances security objectives with financial sustainability. Cost-sharing mechanisms, phased implementation over 3-5 years, and commercial flexibility provisions for trading strategic inventories could make the burden more manageable. A tiered, dynamic approach based on geopolitical risk levels—rather than a rigid 30-day mandate—might optimize the trade-off.
The Strait of Hormuz disruption has demonstrated that energy security is no longer theoretical. India's current 21 million barrels of strategic reserves covers only about 5 days of consumption, compared to China's 100+ days. The gap is structural, reflecting differences in strategic priority, financing models, and threat perception that have developed over two decades. Closing this gap requires sustained commitment, but the economic case for action is compelling. The question isn't whether India can afford strategic reserves—it's whether it can afford the consequences of remaining vulnerable.
