India-Japan energy security pact: During Japanese Prime Minister Takaichi Sanae’s India visit last week, the two nations decided to enhance cooperation on strategic petroleum reserves and broader energy security. Prime Minister Narendra Modi and his Japanese counterpart, India’s Ministry of Petroleum and Natural Gas and Japan’s Ministry of Economy, Trade and Industry recently agreed to collaborate on developing strategic petroleum reserve ecosystems, emergency stockpiling mechanisms, maritime energy transport and investments in upstream oil projects in third countries. Given India’s high dependency on crude imports, the alliance will help the nation mitigate some risks on the front.
Crude oil reserves do not get attention everyday but every geopolitical shock from the Russia-Ukraine war to disruptions in the Middle East has reinforced one lesson- countries that depend heavily on imported oil cannot afford to treat energy security as an afterthought. It is with this thought that two of Asia’s largest energy importers are preparing for an uncertain global energy landscape.
READ | US-Iran deal leaves India’s energy buffers exposed
The world’s third-largest oil importer after China and the United States i.e India is expected to see a rise in oil demand in the coming years ahead as economic growth accelerates and vehicle ownership expands. The International Energy Agency has estimated that India will account for one of the largest shares of global oil demand over the next decade.
In periods of volatility like witnessed recently, India is forced to dip into precious forex reserves. Strategic petroleum reserves can cushion such shocks. Just as the RBI keeps foreign exchange reserves to cushion financial shocks, government must maintain petrol reserves for stability during energy crises.
Unlike commercial inventories maintained by refiners, strategic reserves are government-controlled emergency stockpiles that can be released when supplies are disrupted or prices rise dramatically. These reserves do not replace regular imports but can provide governments with breathing space during crises.
India’s strategic reserve programme has evolved steadily over the past decade. Under the first phase, underground rock caverns at Visakhapatnam in Andhra Pradesh were selected along with Mangaluru in Karnataka and Padur in Karnataka. These have a combined capacity of about 5.33 million metric tonnes. These facilities can hold roughly 39 million barrels of crude oil, equivalent to around nine to ten days of India’s net oil imports.
The second phase seeks to significantly expand this capacity. New facilities have been planned at Chandikhol in Odisha and an additional cavern at Padur, which together could nearly double India’s strategic storage. However, establishing reserves is costly and also comes with geological challenges. This has impeded exponential progress despite the recognition of their needfulness.
READ | How the Hormuz crisis can push India towards energy security
What will India-Japan energy pact do?
For now, India’s reserves are less by international standards. According to the International Energy Agency, member countries are required to maintain emergency oil stocks equivalent to at least 90 days of net imports. India is not an IEA member and therefore has no such obligation but its combined strategic and commercial inventories still fall short of that benchmark. Estimates generally place India’s total available crude and petroleum inventories at around two months of demand, depending on refinery stocks and inventory levels.
On the other hand is Japan which has invested significantly in building reserves. As one of the world’s largest energy importers with limited domestic hydrocarbon resources, it has built one of the most comprehensive oil stockpiling systems globally. Japan maintains substantial government reserves alongside mandatory industry inventories, and has one of the highest levels of emergency preparedness among major economies. It has also done a great job at inventory management, emergency releases and coordination with international partners.
India looks to benefit from this experience. The India-Japan agreement has specifically mentioned cooperation on national stockpiling systems, industry stockpiles, reserve mechanisms, coordination with producing countries and emergency response frameworks. India is not merely grappling with a storage issue but governance challenges involving how reserves are built, financed, managed and deployed during crises.
Beyond oil, the two countries have also agreed to explore joint investments across the maritime energy transport value chain. There is a growing understanding that securing oil is only part of the challenge and transporting it safely has become equally important.
Much of India’s imported crude passes through vulnerable maritime chokepoints such as the Strait of Hormuz, the Bab el-Mandeb Strait and the Strait of Malacca. Any disruption along these routes can delay supplies and raise freight costs. In the past, attacks on commercial shipping in the Red Sea demonstrated how quickly geopolitical tensions can affect global supply chains, even without direct disruptions to oil production. It is for this reason that greater cooperation on maritime transport could also include investments in shipping infrastructure, logistics, port facilities and tanker fleets.
READ | Energy security: India must be prepared for oil supply disruptions
Financing large-scale strategic storage projects is one of the critical bottlenecks that India is facing. Building underground caverns is expensive. Unlike commercial investments, strategic reserves generate limited direct financial returns because they are insurance products rather than profits. International partnerships can lower financing costs while bringing advanced engineering expertise and operational best practices.
Meanwhile, India is making parallel investments in third countries. Rather than relying solely on spot purchases, the government has encouraged state-owned companies to acquire equity stakes in overseas oil and gas assets. Such investments do not eliminate import dependence, but they provide greater supply diversification and long-term access to production. Joint investments with Japanese partners could also spread risks while improving bargaining power.
While India’s development with Japan is noteworthy, strategic reserves alone cannot shield it from every energy shock. They are finite resources intended for emergencies rather than prolonged supply disruptions. If global oil prices remain elevated for months, reserves will only buy time but cannot solve the existing problems. Likewise, expanding storage capacity does little to reduce India’s long-term dependence on imported fossil fuels.
The bottomline is- energy security rests on multiple pillars such as domestic exploration, renewable energy expansion, biofuels, natural gas infrastructure, electric mobility and improved energy efficiency. The country has made considerable progress in expanding solar power and promoting ethanol blending, but oil will remain indispensable for transport, aviation, petrochemicals and industry for years to come.
It is time for India to get better at managing the risk. The India-Japan partnership recognises this reality.