By N Chandra Mohan
These are challenging times for India’s energy security with relentless pressure from the US to reduce its purchases of deeply discounted Russian oil if the bilateral trade deal is to go through. Punitive tariffs of 50% will remain amid indications that our dependence on Russian oil might attract even higher duties. India’s reliance on imports for its oil requirement, which is as high as 88%, faces geopolitical risks.
To bolster its energy security, India must make determined efforts to boost domestic oil output that has been steadily declining. This has been falling for various reasons including low investment due to obstructive regulations, high taxation, and declining output from mature fields. India also lacks the technological capability for deep-water exploration.
How will reducing its imports from Russia affect India’s energy reserves?
Discontinuing such purchases from Moscow, no doubt, will impact India’s external accounts as they met 36% of its requirements of 5 million barrels of oil a day since 2023. Due to these cheaper supplies, India’s oil import bill declined year-on-year by 17% to $50.4 billion this fiscal till August. But there are nascent signs of change with India seeking to balance between Russian oil and reliable West Asian supplies to ensure security and avoid overexposure to geopolitical shocks.
Diversifying India’s oil basket to include more oil supplies from the US, the world’s largest producer, is also under active consideration. But the fact remains that opting out from buying deeply discounted Russian oil only implies costlier supplies from West Asia and the US.
Recommendations for India’s energy diversification plan
Hoping that the current dynamics of the global oil market—that is awash in supplies due to the unwinding of voluntary production cuts by the Organisation of Petroleum Exporting Countries and its allies—will lead to a significant decline in prices in the coming months might turn out to be a false dawn.
No doubt, it is true that Brent spot prices are down to $67-68 a barrel from $79 in January, but they appear to be somewhat “sticky” at current levels. Instead of crashing to predicted levels of $59 a barrel in October-December and $50 a barrel in early 2026, according to the US Energy Information Administration, they have remained resilient largely due to the continuing stockpiling of reserves by China, the second largest economy in the world.
India must therefore go all in to boost domestic oil production and improve relative self-sufficiency over the medium term. To be sure, the government is seized of the imperative of stepping up oil production by incentivising domestic producers and global giants for exploration and production (E&P), and has enacted the Oilfields (Regulation and Development) Amendment Act, 2025. Foreign drillers will be insured against any fiscal policy changes—a major irritant that has kept Exxon, Shell, and Chevron from participating in the first nine drilling rounds.
Union petroleum minister Hardeep Singh Puri states that the government is committed to increasing exploration acreage to 1 million square km by 2030 in areas previously marked as no-go zones. Obviously, it will take more time before the pragmatic policy stance bears fruition. But the good news is that the state-owned Oil and Natural Gas Corporation (ONGC) drilled 578 wells in FY25, the highest recorded in 35 years, comprising 109 exploratory and 469 development wells. Its capex hit $7.2 billion.
ONGC has inked a contract with BP (formerly British Petroleum) to optimise oil recovery in the relatively mature Mumbai High. Private oil and gas majors like Cairn Oil & Gas plan to treble output and account for 50% of India’s oil production. Cairn has plans to invest $3-4 billion for E&P over the next five years. In July, Puri told Parliament that since 2015 E&P players have reported 172 hydrocarbon discoveries including 62 in offshore areas.
However, none of this appears to be reflected in any uptick in domestic output. The continuing slide in output is not just of the state-owned oil majors but also private players whose output declined by more than half in FY25 as against record levels of production of 12 million tonnes in FY14. Reversing this fall is predicated on a much greater involvement of the global oil majors who have the expertise in deep-water exploration. Puri is bullish that India holds the potential of “several Guyanas” in the Andamans—with a gas find by Oil India—as it lies within the Bengal-Arakan sedimentary system where stratigraphic traps—underground geological formations caused by sedimentary rock layers—are conducive to hydrocarbon accumulation.
India must not be deterred by the fact that exploratory stratigraphic drilling by ONGC, Oil India, and BP—in four offshore basins, including Andamans—reportedly faces cost overruns even before this programme has commenced. E&P is serendipitous in nature and it is essential that global majors find it profitable to “drill, baby, drill” in the country. In Guyana, drilling was done in 44-odd wells but it was in the 41st one that massive oil reserves were discovered. For improving our relative self-sufficiency, it is imperative that global oil majors (including domestic players) are not constrained by the challenging business environment, including concerns around arbitration and compensation in case of expropriation.
N Chandra Mohan is an economics and business commentator based in New Delhi
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