Iran war shock: Govt asks ONGC to build ₹15,000 crore strategic oil reserve at Mangaluru

New Delhi: Oil and Natural Gas Corp (ONGC) is planning to build and fill India's next strategic petroleum reserve (SPR) facility in a government-directed move that could require the company to invest around $1.6 billion(₹15,000 crore), people familiar with the matter, said.

The Iran war, which exposed India's limited strategic oil reserves and vulnerability to supply shocks, prompted the government to ask ONGC to develop the facility as part of efforts to strengthen the country's energy security, the people said.

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The proposed 1.75 million metric tonne (MMT) underground cavern at Mangaluru will expand India's current emergency crude storage capacity of 5.33 MMT by about one-third, they said. ONGC, which already owns the land for the project, may need to spend about ₹5,000 crore on construction and another ₹10,000 crore to fill the facility with crude at current oil prices and exchange rates, people said. The sources did not specify how India's largest oil and gas producer would recover its investment, or whether the facility would function entirely as a strategic reserve or include a commercial component. This will be the first time a state-run oil company has been asked to develop an SPR facility. The three existing SPR sites were funded by the government and are owned and operated by Indian Strategic Petroleum Reserves Ltd (ISPRL), a state-owned special purpose vehicle. These facilities are located at Visakhapatnam (1.33 MMT) in Andhra Pradesh, and Mangaluru (1.5 MMT) and Padur (2.5 MMT) in Karnataka.

India consumes India's 5 million barrels per day and its current SPR capacity of 5.33 million tonnes, or about 39 million barrels, is modest compared with that of other major oil-consuming nations. The capacity is also not always fully utilised. At the end of 2025, India held just 21 million barrels of strategic crude stocks, compared with 1,397 million barrels in China, 413 million barrels in the US and 263 million barrels in Japan, according to the US Energy Information Administration.

India's SPR facilities were originally conceived as purely strategic assets, but the government revised that approach in 2021 by allowing ISPRL to use half of the capacity for commercial purposes. Under the policy, ISPRL can lease 30% of capacity to refiners or traders and use 20% of the crude stored for trading activities.

For the second phase of SPR expansion, involving facilities at Chandikhol (4 MMT) in Odisha and Padur (2.5 MMT), the government approved a public-private partnership model in 2021. Last year, Megha Engineering & Infrastructures Ltd won the mandate to build and operate the Padur facility, while the Chandikhol project is yet to be awarded.

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Megha secured the contract by seeking the lowest viability gap funding (VGF) among bidders, with VGF capped at 60% of the project's ₹5,700-crore cost. Under the PPP model, the developer can recover its investment by leasing storage capacity to the government or domestic oil companies and by trading crude held in the facility with full commercial freedom. Large oil stockpiles provide a buffer against supply disruptions, price spikes and currency volatility triggered by geopolitical or other events such as the Iran war, which began on February 28. Backed by its vast strategic reserves, China was able to cut crude imports in May by about one-third from pre-war levels as prices surged. Indian refiners, by contrast, scrambled to secure supplies from around the world to keep their refineries running.