US-Iran war: As soaring crude oil prices, driven by the US-Iran conflict, pose a critical macroeconomic challenge for the Indian economy, India is taking all possible domestic and strategic measures to ensure an uninterrupted energy supply, even as the Strait of Hormuz, a crucial global oil transit route, remains effectively closed.
Prime Minister Narendra Modi visited the UAE on the first leg of his five-nation visit on 15 May and held discussions with UAE President Sheikh Mohamed bin Zayed Al Nahyan.
According to PIB, both countries are committed to expanding cooperation across strategic, economic, technological, and social sectors.
The highlight of the PM’s visit was the signing of pacts on strategic petroleum reserves and the supply of liquefied petroleum gas by the two countries.
The strategic collaboration between Indian Strategic Petroleum Reserves Limited (ISPRL) and Abu Dhabi National Oil Company (ADNOC) is expected to increase ADNOC’s crude oil storage in India for up to 30 million barrels and may potentially lead to the setting up of strategic gas reserves in India.
“The leaders agreed to promote new initiatives for a comprehensive energy partnership. In this context, they welcomed the conclusion of a Strategic Collaboration Agreement between Indian Strategic Petroleum Reserves Limited and Abu Dhabi National Oil Company to enhance the UAE’s participation in India’s Strategic Petroleum Reserves to 30 million barrels, and work together to set up strategic gas reserves in India,” said a statement from the Ministry of External Affairs (MEA).
“They also welcomed the arrangement entered into between Indian Oil Limited (IOCL) Company and Abu Dhabi National Oil Company (ADNOC) on long-term LPG supplies,” as per the MEA statement.
According to experts, the agreement between India and the UAE will not only diversify India’s energy sources and expand storage capacity, but it will also potentially build a secure and future-ready energy ecosystem for the country.
PM’s UAE visit: A strategic masterstroke
PM’s visit to the UAE has come after the West Asian country’s decision to exit OPEC.
On 1 May this year, the UAE decided to leave the Organisation of the Petroleum Exporting Countries (OPEC) to generate more revenue and exercise greater autonomy.
Experts believe that the UAE’s departure from OPEC would allow it to produce more oil, synced with its potential, which would curb OPEC’s dictate on oil production and prices and help major oil importers, such as India.
As the UAE is changing its strategy for oil, India wants to diversify its imports and secure a durable supplier of energy, as geopolitical uncertainties are high.
“The UAE is changing its strategy. Instead of supporting higher oil prices through production cuts, which is preferred by Saudi Arabia, it is focusing on producing and selling more oil now, before global demand slows due to the energy transition. Geopolitical tensions, especially with Iran and risks around the Strait of Hormuz, also made the strategic shift in the UAE’s oil exploration policy,” Abhinav Tiwari, Research Analyst at Bonanza, noted.
The Strait of Hormuz, through which almost a fifth of the world’s oil passes, has been effectively closed since the US-Iran war started on 28 February. This has shot up oil prices, creating one of the biggest economic challenges for Indian in recent months.
The India-UAE deal also appears to have a Hormuz angle.
The UAE’s Abu Dhabi Crude Oil Pipeline can transport about 1.5 million bpd directly to Fujairah in the UAE, bypassing Hormuz and ensuring a safe and secure oil supply.
“A key advantage for the UAE is the Abu Dhabi Crude Oil Pipeline, which can transport about 1.5 million bpd directly to Fujairah, bypassing Hormuz. Since Fujairah opens into the Arabian Sea, oil can be shipped safely and quickly,” Tiwari said.
“For India, this ensures more stable, faster, and potentially cheaper oil supplies. With stronger UAE ties and higher output flexibility, India’s energy security improves significantly,” said Tiwari.
India and the UAE share a long-standing relationship after formal diplomatic relations were established in 1972, followed by the opening of embassies in Abu Dhabi and New Delhi.
Experts believe the fresh deals between the two countries are hugely beneficial for India.
“The India-UAE deal is a major diplomatic breakthrough and hugely beneficial for India. A major benefit in the context of the present oil crisis is the UAE’s agreement to store up to 30 million barrels of crude oil in India’s Strategic Petroleum Reserve, entirely at the UAE’s expense,” noted VK Vijayakumar, chief investment strategist at Geojit Investments.
“The UAE has also committed $5billion investment in Indian infrastructure. Indian exports to the UAE are almost duty-free, boosting India’s exports,” Vijayakumar said.
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