What do the new agreements between UAE and India entail? How will India’s energy security plans get a boost? (AI image)

India’s energy security received a major boost on Friday when two important Memorandum of Understanding (MOUs) were signed during PM Narendra Modi’s visit to the UAE on Friday. India imports close to 90% of its crude requirements, making the country vulnerable to geopolitical disruptions, shipping bottlenecks, sanctions, and price volatility. This vulnerability has been exposed during the ongoing US-Iran conflict, with the disruption of supplies via Strait of Hormuz dealing a blow.The two agreements pertain to building strategic petroleum reserves for India, and ensuring long-term LPG and LNG supply. “This UAE visit also saw the conclusion of key agreements across vital areas such as energy, defence, infrastructure, shipping and advanced technology, giving fresh impetus to the India-UAE Comprehensive Strategic Partnership,” PM Modi said on social media.“In another important development, UAE announced investments worth $5 billion in India. This will further deepen economic ties,” he said.UAE is one of India’s top five crude oil suppliers and its geographical proximity to India makes supply available at a short notice. Hence having UAE store oil for India, and also help build oil reserves in India acts as a booster. UAE’s recent move from OPEC and OPEC+ will also work to India’s benefit since it allows the Middle East country to step up oil production, believe experts.

In fact, according to Kpler data recent crude trade flows show that India’s imports from the UAE during late April and May have already recovered to levels broadly comparable to what it was importing prior to the conflict escalation. This highlights how closely both countries have coordinated despite the challenging market environment.What do the new agreements between UAE and India entail? How will India’s energy security plans get a boost?

Energy Security MOUs with UAE: Top Facts

According to press release from the Prime Minister’s Office, the two energy security related agreements signed today will have the following scope:MoU on Strategic Collaboration between Indian Strategic Petroleum Reserves Limited (ISPRL) and Abu Dhabi National Oil Company (ADNOC)

Strategic Collaboration Agreement between Indian Oil Limited (IOCL) and ADNOC on supplies of LPG

India has strategic petroleum reserves at Visakhapatnam, Mangaluru, and Padur. Capacity expansion is approved with reserves at Chandikol, and Padur. The MOU with the UAE aims to help enhance these reserves in India, while also storing oil in Fujairah for India. Storage of oil at Fujairah will also help reduce India’s dependence on the Strait of Hormuz for transit of oil.

How the energy security agreements with UAE benefit India

Experts have hailed the MOUs, calling them game-changing for India’s energy security in the long-term. The importance of having strategic petroleum reserves has been brought to light with stark clarity due to the US-Iran war, exposing gaps in energy security of major economies. India, the world’s sixth largest economy, has faced shock like never before in recent times.Gaurav Moda, Partner & Leader, Energy sector, EY-Parthenon India says, “India and UAE have a long shared history and diaspora, increasingly closer in recent times. Given the global uncertainties, such bilateral engagement is timely and mutually beneficial to both countries in a major way. It may further pave the way for multiple new avenues in energy cooperation at G2G level as well as across energy majors from both countries.”First, let’s understand why strategic petroleum reserves are important – in times of geopolitical instability or any maritime freight disruptions that may be caused around key chokepoints such as the Strait of Hormuz (as is the case with the US-Iran conflict), it is a country’s strategic reserves that act as an effective buffer against supply shocks. They can help stabilize the domestic supply and also reduce any panic buying that may ensue in the market.

Compared to other major economies in the world like the US, Japan, and China, India’s strategic oil reserves fall way short, and the agreements are a step in the right direction to ramp up capacity.For Sourav Mitra, Partner – Oil & Gas, Grant Thornton Bharat, the announcement on strategic petroleum reserves has ‘monumental implications for India’.The main challenge here is not just securing access to energy but also managing uncertainty arising from geopolitical tensions. The value of strategic reserves lies in creating room for thinking. “Larger and more collaborative reserve arrangements can reduce exposure to short-term volatility, and provide policymakers with more space to respond during crises. It also enables a shift in thinking from immediate procurement to long-term risk management, where energy security is built through buffers and resilience,” Mitra tells TOI.

“The significance of such partnerships is increasing because the global energy landscape is becoming more uncertain. Disruptions today can emerge from geopolitical events, with little warning. In that context, strategic reserves are no longer just emergency storage assets but strategic instruments that strengthen national energy resilience and support more stable long-term planning,” he adds.Hence, the biggest takeaway is clear: The agreements could have significant implications for India’s energy security and supply diversification strategy.According to Sumit Ritolia, Manager Modelling and Refining at Kpler, the MoUs represent an important step in strengthening the long-term energy partnership between India and the UAE, particularly at a time when global energy markets remain highly sensitive to geopolitical disruptions, freight risks, and supply security concerns. “The agreement around Strategic Petroleum Reserves is especially important for India given its heavy dependence on imported crude oil. Enhanced cooperation with the UAE on reserves could help India strengthen its emergency crude storage capabilities, improve access to strategic barrels during supply disruptions, and provide greater flexibility in crude procurement and inventory management,” Sumit Ritolia tells TOI.“Closer cooperation with ADNOC and UAE entities could also support commercial storage arrangements, optimized crude stocking strategies, and potentially quicker access to Middle Eastern crude during emergencies,” he adds.What about LPG? More than crude oil, the US-Iran war dealt a blow to India’s LPG supply. Similar to crude oil, India is heavily dependent on imports for its LPG needs. But unlike crude which has several suppliers across the globe for India, the LPG requirement is majorly met through the Middle East – hence exposing the vulnerability.Sumit Ritolia of Kpler says that the long-term LPG supply agreement is equally significant as India’s LPG demand continues to rise steadily due to residential consumption growth, urbanization, and government-led clean cooking fuel initiatives. “India remains structurally dependent on LPG imports despite increasing domestic refinery and gas processing output. Securing long-term LPG supply arrangements with the UAE can help India reduce reliance on volatile spot cargo markets, improve supply visibility, and enhance affordability and availability for domestic consumers,” he says.Stable long-term contracts can also help India better manage seasonal demand spikes and reduce exposure to sharp price swings in international LPG benchmarks. Given the importance of LPG in India’s household energy mix, ensuring reliable imports remains a strategic priority, he adds.

Broader Energy Cooperation

As the Kpler expert notes: beyond crude and LPG, the broader energy cooperation framework further deepens the India-UAE strategic relationship across the hydrocarbon value chain. This may include collaboration in upstream investments, refining, petrochemicals, storage infrastructure, energy trading, logistics, and potentially cleaner energy transitions over the longer term. “For India, stronger integration with a reliable Gulf supplier such as the UAE improves diversification, strengthens supply chain resilience, and supports long-term energy planning. From the UAE’s perspective, India remains one of the world’s fastest-growing energy demand centers and an important long-term market for crude oil, LPG, and petrochemical products,” he says.Which is not to say that India’s immediate energy supply crunch will disappear. The agreements will yield long-term benefits, but short-term supply constraints remain as the Strait of Hormuz is still closed.“The immediate short-term impact (of the MOUs) may remain somewhat limited as trade flows through the Strait of Hormuz continue to face restrictions and elevated geopolitical risks. However, the strengthening of India-UAE energy ties clearly improves India’s positioning in terms of supply preference, bilateral coordination, and long-term import security,” Ritolia opines.“Overall, the agreements reinforce India’s broader strategy of securing diversified and reliable energy partnerships while improving preparedness against future market disruptions. At a time when energy security has become increasingly intertwined with geopolitics, logistics, and trade flows, these MoUs could provide India with greater supply stability, strategic flexibility, and stronger coordination with one of its key Middle Eastern energy partners,” he concludes.

Russian Foreign Minister Sergey Lavrov on Friday said crude oil supplies from Russia to India have increased despite Western sanctions and mounting geopolitical pressure, ANI reported.Speaking on the sidelines of the BRICS Foreign Ministers’ Meeting in New Delhi, Lavrov said the rise in Russian oil exports to India was reflected in publicly available data.“We published this data in the global media… This information shows that oil supplies to India increased, and it does not depend on us, but on our Indian counterparts…,” Lavrov said during a media briefing, news agency ANI quoted.India has continued importing discounted Russian crude since the imposition of Western sanctions on Moscow, maintaining that its energy procurement decisions are guided by national interest and the need to secure affordable supplies for the domestic economy.Russia has emerged as one of India’s largest crude oil suppliers in recent years as trade flows shifted following the Ukraine conflict and sanctions imposed by Western nations.Lavrov also criticised the United States over its global energy strategy, alleging that Washington was attempting to dominate global energy supply chains while targeting major Russian energy firms.He claimed the US was trying to squeeze Russian companies such as Lukoil and Rosneft out of global markets.“The United States has adopted doctrinal documents proclaiming that it must dominate global energy markets,” Lavrov said, according to remarks also cited by Al Jazeera.Lavrov is attending the BRICS Foreign Ministers’ Meeting being held in New Delhi from May 14-15 alongside foreign ministers from member nations, including Iranian Foreign Minister Seyed Abbas Araghchi.The meeting comes amid heightened geopolitical tensions in Middle East and continued disruptions around the Strait of Hormuz, a critical global energy transit route.India has so far maintained a calibrated diplomatic position amid evolving tensions involving Iran, Saudi Arabia, the UAE, Russia and the United States, while continuing to prioritise energy security and strategic autonomy.

After the hike today, petrol is now retailing at Rs 97.7 per litre in Delhi. (AI image)

A hike in petrol and diesel prices has been in the offing for some weeks now, and hence today’s Rs 3 per litre raise comes as no surprise. This is especially true since there is no early resolution to the US-Iran conflict in sight and the continuously high crude prices globally are raising the oil import bill. Since the start of the war at the end of February, India had stood out for being one of the few countries not to raise petrol and diesel prices in the wake of the oil supply shock that sent shockwaves globally.India had kept its petrol and diesel prices unchanged for four years now – ever since the Russia-Ukraine conflict. But the rising global oil prices, past the $100 per barrel mark has made the math unsustainable for oil marketing companies.After the hike today, petrol is now retailing at Rs 97.7 per litre in Delhi. The rates for Mumbai, Kolkata, and Chennai are Rs 106.68, Rs 108.74, and Rs 103.67 respectively. Diesel in Delhi costs Rs 90.67, while in Mumbai, Kolkata and Chennai it costs Rs 93.14, Rs 95.13 and Rs 95.25 respectively. The rates vary across cities depending on the state level taxes – value-added taxes. Petrol and diesel do not come under GST so the tax rates are not uniform across the country.Why was a hike in petrol and diesel prices inevitable? What is the amount of loss that oil marketing companies are facing? And more importantly, will petrol and diesel prices be hiked further in the coming days?

Why were petrol, diesel prices hiked?

The US-Israel-Iran war began over two months ago – yet India did not raise fuel prices. So, what compelled the government to finally allow state-run oil marketing companies (OMCs) to raise the rates?Several statements over the last week had pointed a revision in oil prices – PM Narendra Modi had called for austerity measures to cut down on fuel consumption save forex reserves, Oil minister Hardeep Singh Puri had pointed to the mounting losses of OMCs, and RBI governor Sanjay Malhotra had said that if the oil supply and price shock continues then consumers will eventually have to bear the price hike.

Today’s hike comes from state-run OMCs – Indian Oil, Bharat Petroleum, and Hindustan Petroleum. Private fuel retailers such as Nayara, Shell have already hiked prices in March. Domestic cooking gas LPG prices were raised in March itself by Rs 60 per cylinder. With the closure of the Strait of Hormuz, the oil supply disruptions have caused crude prices to skyrocket. Global crude oil prices have shot up from $70-72 per barrel range before the Middle East conflict to above $120 at one time. They are now hovering above $100 per barrel, in the $104-110 range.The crude oil basket that India imports is averaging at around $113-114 per barrel, up from $69 in February.Crude oil is the raw material that is needed to refine it into petrol and diesel. The massive surge in oil prices means that oil retailers are paying much more for oil procurement. With retail prices unchanged earlier, OMCs were seeing huge losses.So, if the losses mounted at the start of the war, why were prices not revised immediately? Apart from possible political reasons linked to state elections, the first step that stopped a revision was the government’s move to cut excise duty on petrol and diesel.On March 27, to cushion consumers from rising global crude oil prices, the government cut the excise duty on petrol and diesel by Rs 10 per litre each. This meant a tax revenue hit for the government coffers.

Despite this, according to estimates, oil companies were losing as much as Rs 14 per litre on petrol, Rs 42 a litre on diesel, before Friday’s decision to hike rates.Earlier this week, Oil minister Hardeep Singh Puri said the three state-run fuel retailers were losing around Rs 1,000 crore per day in a bid to keep petrol and diesel prices unchanged. ,He said that the cumulative losses in a quarter for the OMCs was enough to wipe out all the profit the companies made in a full year. He estimated the losses at about Rs 1 lakh crore.

Petrol, diesel prices: Is this the first of more hikes?

According to a PTI report, industry sources said the price hike appears calibrated – enough to partially ease margin pressure on oil companies without creating major inflationary shock.Experts and economists also believe that the hike may just be the beginning of a staggered increase in rates of petrol and diesel. This means that petrol and diesel prices may continue to rise in the coming days, especially if the Middle East crisis does not resolve and global crude oil prices continue to stay high above $100 per barrel.

Radhika Rao, Executive Director and Senior Economist at DBS Bank draws on historical data to note that further hikes may be likely.“Back in 2022, the increases in pump prices were staggered. This time around, given the sharp rally in global crude prices and limited signs of an imminent end to the conflict, we could see one or two additional modest increases, taking the cumulative increase to around 10%,” she tells TOI.Madan Sabnavis, Chief Economist at Bank of Baroda also agrees that the present hike in the price of diesel and petrol of Rs 3 a litre is a start made to compensate OMCs for the losses that are being incurred. “This may not be the sole hike, and we could expect more in the coming days depending on the evolving conditions. Having small hikes has a better impact on consumer sentiment,” Sabnavis explains.“Also the OMCs can track global developments and movement of prices before going in for subsequent hikes as they have a bearing on inflation which in turn will affect policy decisions too,” he adds.The key to further price hikes lies in the duration of the US-Iran conflict, closure of the Strait of Hormuz and the broader trendline of crude oil prices globally.Ranen Banerjee, Partner and Leader, Economic Advisory Services, PwC India sees today’s hike as a partial pass on of costs. “The future actions will be dependent on how long the conflict continues and the crude prices trend. If it remains at current levels, then there could be more staggered increases,” he says.Sachchidanand Shukla, Group Chief Economist at L&T tells TOI, “If global crude and LPG prices remain elevated for elongated periods, the government will have to further raise petrol and diesel prices along with providing some support to OMCs on LPG.”“The Rs 3 per litre price hike is a staggered response to the near 3-month old West Asia crisis. It will provide some relief to OMCs who are incurring gross marketing margin loss of Rs 15-20 per litre on sale of petrol and diesel,” he adds.According to a PTI report, the Rs 3 per litre hike is just around one-tenth of the raise needed to make up for losses that are being incurred by OMCs from higher crude oil prices. Importantly, the government has already tried to absorb part of the higher crude oil price bill by cutting excise duties. Clearly, that has proven to be insufficient to counter the impact of crude oil above $100.The bottom line is clear: If this trend continues, it may only be a matter of time when retail prices of petrol and diesel are raised again.