India banks on diversification, diplomacy to counter oil market volatility

India is looking to mitigate oil market volatility by diversifying its crude-buying sources and encouraging refiners to maintain flexibility between term and spot contracts to take advantage of arbitrage opportunities and cut costs, the petroleum ministry told a parliamentary panel.

In an Aug. 6 report presented to parliament — a copy of which was made available to Platts, part of S&P Global Energy, this week — the ministry said New Delhi is also using diplomatic channels to strengthen government-level cooperation with resource-rich countries, both for oil and gas imports and for investment opportunities in overseas exploration assets.

"India has mitigated volatility in the global energy market through increasing diversification of sources. India pursues a market-based and diversified approach to sourcing crude oil, guided by energy security, affordability and reliability, keeping in view the needs of its 1.4 billion people," the report said.

Crude oil futures settled higher Aug. 11, as the market weighed a possible Iran-Oman accord over the Strait of Hormuz against ongoing US demands on Tehran, which left broader prospects for resolution uncertain. ICE October Brent rose $1.19/barrel to $88.91/b, while the September NYMEX light sweet crude contract was up $1.07/b at $83.20/b.

The report said India is currently importing crude oil from more than 41 countries across the Middle East, the US, Africa, Latin America and other markets, reducing its dependence on any single geography or region.

"The government encourages oil public sector undertakings to regularly optimize procurement through a mix of term contracts and spot purchases under different arrangements, to ensure flexibility and cost competitiveness," it added.

The report also said that while refinery expansion projects on the west coast leveraged proximity to crude import routes and export markets, strengthening India's position as a refining hub, projects in the northeast have promoted regional development. Coastal refinery projects improved logistics efficiency, reduced transportation costs and enabled the development of port-based industrial corridors.

"Technological upgrades, such as advanced process control, real-time optimization and digital monitoring systems, have enhanced energy efficiency and throughput. Success in value-chain integration is being achieved through integrating traditional refining with petrochemical production to enhance efficiency and profitability," it added.

Declining output from aging fields

Domestic oil and gas production has been affected over the years by the natural decline of mature, aging fields. Additionally, subsurface complexities sometimes restrict the effectiveness of operations, new drilling and infill wells, affecting overall production.

To arrest natural declines, the government has approved policies to promote and incentivize enhanced recovery and the production of unconventional hydrocarbons through fiscal incentives in the form of partial waivers of royalties and taxes, the report said.

State-run oil and gas companies have also been actively pursuing opportunities to acquire high-quality oil and gas assets overseas to strengthen energy security, and they currently hold participating interests in 45 assets across 21 countries.

Over April-December 2025, equity production from these overseas assets totaled 14.5 million metric tons of oil equivalent, accounting for about 30.5% of India's total domestic production, the report said.

The report added that the petroleum ministry is working in close coordination with the foreign ministry and Indian missions abroad to strengthen diplomatic engagement and address regulatory issues affecting Indian state-run oil companies.

"Such engagements are aimed at creating a stable investment environment for Indian companies and securing favorable terms for overseas exploration and production assets," it said.

The Indian cabinet recently approved investments of up to 840 billion rupees ($8.8 billion) over the next five years to advance oil and gas exploration in the offshore segment — a move that would bring the country closer to energy self-sufficiency, according to a petroleum ministry statement July 31.

With the newly approved investments to be made through fiscal year 2030-31 (April-March), the National Offshore Exploration Scheme is expected to catalyze reserve accretion of over 600 million toe, the statement said. The initiative is expected to stimulate investments across the exploration and production value chain, create long-term opportunities for the industry and drive innovation and economic growth, it added.

According to S&P Global Energy CERA, as India seeks to reduce import dependence and strengthen energy security, companies such as Oil and Natural Gas Corp. and Oil India Ltd. face growing pressure to invest in domestic exploration, mature-field redevelopment and production growth. As a result, Indian state oil companies are pursuing a dual strategy — securing equity barrels overseas while simultaneously advancing domestic upstream development to support long-term energy security objectives.

Integrating new energy into operations

The parliamentary panel report said India has formally committed to achieving net-zero carbon emissions by 2070, in line with its energy transition goals.

State-run oil refiners plan to progressively integrate low-carbon energy sources, such as solar and other renewables, into conventional operations through pilot projects, feasibility studies and phased implementation, subject to technological readiness and site-specific conditions across all their operational areas, the report added.

"Energy efficiency remains a core focus area for oil companies, not only for minimizing environmental impact but also for optimizing operating costs and enhancing upstream and downstream performance. Petroleum companies are making significant investments in renewable energy sources such as solar and wind and are progressively integrating these sources with their existing operational networks," it said.

The report added that the government is also implementing the National Green Hydrogen Mission, with the objective of making India a global hub for the production, use and export of green hydrogen and its derivatives. India's green hydrogen production capacity is likely to reach 5 million mt/year by 2030.

"The government has been enhancing global collaboration with major economies and companies on technological advancement in green hydrogen and other emerging fuels," it said.