India's refiners scrambled to secure supplies while China cut imports by a third
As regional conflict laid bare the fragility of India's energy supply lines, the world's third-largest oil consumer has turned inward — directing its state oil giant, ONGC, to carve a $1.6 billion underground reserve into the bedrock near Mangaluru. The move is less a solution than a reckoning: a nation of 1.4 billion people, consuming five million barrels a day, has long held reserves that would last barely four days in a crisis. In assigning this task to ONGC rather than the government itself or a private partner, India is not merely expanding storage — it is quietly rewriting the philosophy of who bears responsibility for national energy security.
- The Iran war, which erupted in late February, exposed India's strategic crude reserves as dangerously thin — while China drew down its vast stockpiles with ease, Indian refiners scrambled across global markets just to keep their plants running.
- India's 21 million barrels of emergency crude stands in stark contrast to China's 1.4 billion, the United States' 413 million, and Japan's 263 million — a gap that is no longer a statistic but a lived vulnerability.
- The government has tasked ONGC, India's largest oil and gas producer, with both building and filling a 1.75 MMT underground cavern at Mangaluru — a ₹15,000 crore commitment that breaks from every prior model of reserve construction.
- A critical question hangs unanswered: whether ONGC will recover its investment through commercial leasing, crude trading, or government reimbursement — the recovery mechanism has not been defined.
- The Mangaluru project lands India in experimental territory, testing whether a state oil company can simultaneously serve national security imperatives and operate with commercial discipline — a balance no prior Indian reserve facility has had to strike.
When regional conflict disrupted oil supply chains earlier this year, India's energy vulnerability moved from a policy concern to an operational crisis. Indian refiners scrambled to source crude across global markets while China, cushioned by enormous strategic stockpiles, simply reduced imports as prices climbed. The contrast was difficult to ignore: India consumes five million barrels of oil daily but holds only about 21 million barrels in strategic reserve — a thin buffer against a world growing less predictable by the month.
The government's response has been to task ONGC, India's largest oil and gas producer, with building a massive underground storage cavern at Mangaluru at a cost of roughly $1.6 billion. The facility will hold 1.75 million metric tonnes of crude, pushing India's total strategic capacity from 5.33 MMT to 7.08 MMT — an expansion of roughly one-third. ONGC estimates ₹5,000 crore for construction and another ₹10,000 crore to fill the tanks at current prices.
This marks a meaningful departure from how India has historically built its reserves. The three existing facilities — at Visakhapatnam, Mangaluru, and Padur — were government-funded and handed to a state-owned special purpose vehicle to manage. Later phases of expansion moved toward public-private partnerships, with developers recovering costs through storage leases and commercial crude trading. The Mangaluru project fits neither mold: by assigning it to ONGC, the government is testing a new model in which a state oil company bears both the capital burden and the operational responsibility.
What remains unresolved is how ONGC will recoup its investment — or whether it will at all. The government has not specified a recovery mechanism, leaving open whether the facility will function as a pure strategic asset, a partially commercial one, or some hybrid. That ambiguity is not merely a financial detail; it will shape how India manages its oil exposure for years to come. The Mangaluru cavern represents a genuine attempt to close a dangerous gap — but the architecture of what it will become is still being drawn.
India's vulnerability in the global oil market became impossible to ignore when regional conflict disrupted supply chains earlier this year. The government responded by tasking the Oil and Natural Gas Corporation with an ambitious project: building and filling a massive underground storage facility at Mangaluru that will cost roughly $1.6 billion and expand the nation's emergency crude reserves by a third.
The scale of the shortfall became clear during the Iran war, which began in late February. While China's substantial strategic stockpiles allowed it to reduce crude imports by roughly a third as prices climbed, Indian refiners found themselves scrambling across global markets just to keep operations running. The contrast was stark. India consumes five million barrels of oil daily but holds only about 21 million barrels in strategic reserve—a cushion that looks thin next to China's 1.4 billion barrels, the United States' 413 million, or Japan's 263 million. The current capacity of 5.33 million metric tonnes, spread across three existing facilities, was never designed to absorb the kind of shock the region just experienced.
ONGC's assignment marks a departure from how India has historically approached energy security. The three existing strategic reserves—located at Visakhapatnam in Andhra Pradesh and at Mangaluru and Padur in Karnataka—were built and funded by the government itself, then handed to a state-owned special purpose vehicle called Indian Strategic Petroleum Reserves Ltd to manage. This time, the government is asking ONGC, India's largest oil and gas producer, to shoulder both the construction and the filling of the new facility. The underground cavern will hold 1.75 million metric tonnes of crude, a capacity that will push total strategic storage to 7.08 million metric tonnes. ONGC estimates it will need about ₹5,000 crore for construction and another ₹10,000 crore to fill the tanks at current prices and exchange rates.
What remains unclear is how ONGC will recoup its investment or whether the facility will operate purely as a strategic asset or incorporate commercial elements. The government has not specified the recovery mechanism. This ambiguity reflects a broader evolution in how India thinks about oil reserves. In 2021, the government revised its original conception of strategic reserves as purely defensive tools, allowing the special purpose vehicle to lease 30 percent of capacity to refiners and traders and to conduct its own crude trading with another 20 percent. For the next phase of expansion—involving facilities at Chandikhol in Odisha and Padur in Karnataka—the government approved a public-private partnership model. Megha Engineering & Infrastructures won the Padur contract by proposing the lowest subsidy requirement, with the developer able to recover costs through storage leases and commercial trading of held crude.
The Mangaluru project sits in a different category. By assigning it to ONGC rather than pursuing a partnership or relying on the existing special purpose vehicle, the government is experimenting with a new model for energy security infrastructure. Whether ONGC will operate the facility as a pure strategic reserve, lease portions to commercial users, or pursue some hybrid approach will shape how India manages its oil vulnerability going forward. What is certain is that the geopolitical shock of recent months has forced a reckoning: India's current reserves are insufficient for a nation that depends on imported oil and faces an unpredictable world. The Mangaluru facility represents an attempt to close that gap, though the full architecture of how it will function remains to be determined.
Notable Quotes
The Iran war exposed India's limited strategic oil reserves and vulnerability to supply shocks, prompting the government to ask ONGC to develop the facility— Government officials familiar with the matter
The Hearth Conversation Another angle on the story
Why did the government turn to ONGC specifically for this project rather than expanding through the existing special purpose vehicle?
ONGC already owns the land at Mangaluru, which probably simplified the decision. But there's also a signal here—the government may be testing whether a major oil producer can manage strategic reserves more efficiently than a dedicated entity. It's an experiment.
The investment is substantial. How does ONGC justify spending $1.6 billion when the recovery mechanism isn't clear?
That's the real question nobody's answered yet. The government directed them to do it, but whether ONGC will be allowed to lease capacity commercially, trade crude, or operate it purely as a reserve—that determines whether this makes financial sense. Right now it's a policy mandate without a business model.
India holds 21 million barrels while China holds 1.4 billion. Is this one facility enough to close that gap?
Not remotely. This adds about 13 million barrels to the total. It's meaningful—a 33 percent increase in capacity—but it's still a modest buffer for a nation consuming five million barrels daily. It's a step, not a solution.
What changed between 2021, when the government allowed commercial use of reserves, and now?
The Iran war exposed how fragile that balance is. When prices spike and supplies tighten, having reserves you can only use strategically becomes a liability. The government wants more capacity, period. Whether it's commercial or strategic is secondary to having it.
Will this model—state oil company building reserves—become the template going forward?
Probably not. The PPP model for Chandikhol and Padur suggests the government prefers private developers to shoulder construction risk. ONGC's assignment might be a one-off, driven by urgency and the fact they already owned the land. But we won't know until the Chandikhol project gets awarded.