Global Oil Storage Expansion Could Drive 1 Billion Barrel Demand

The prolonged disruption of shipping through the Strait of Hormuz has served as a stark warning for countries heavily dependent on crude oil imports, prompting governments worldwide to accelerate plans for new petroleum storage facilities aimed at strengthening energy security and reducing vulnerability to future supply shocks.

Against an increasingly complex geopolitical backdrop, policymakers are treating future energy crises as a question of when, rather than if. Major oil-producing nations are also considering expanding storage infrastructure across international markets, allowing them to deploy and sell their own crude supplies should critical shipping routes be blocked again by geopolitical conflicts.

Oil Reserves and Their Impact on Prices

Before the outbreak of the Middle East conflict, few policymakers or analysts anticipated a complete halt to tanker traffic through the Strait of Hormuz.

Although tensions in the region had remained elevated for years, the waterway had never previously been fully closed, leading many oil-importing countries to underestimate the risks. That assumption has now been challenged.

The shipping disruption has lasted for nearly four months, while the pace and effectiveness of reopening efforts remain uncertain. The crisis has severely affected energy supplies across Asia. U.S. Strategic Petroleum Reserve inventories have fallen to their lowest level since 1983, while crude inventories at Cushing, Oklahoma — the delivery hub for West Texas Intermediate futures — have declined to just 20 million barrels, approaching critical pressure levels.

Expanded storage capacity could help cushion future supply disruptions and limit the severity of oil price spikes during subsequent crises. At the same time, filling newly built storage facilities would require hundreds of millions of barrels of crude oil and refined products, creating additional demand in the short to medium term and providing underlying support for international oil prices.

Countries Accelerate Storage Expansion Plans

India, Singapore, Australia and Pakistan have all announced plans to increase petroleum storage capacity as a safeguard against future energy crises.

According to Reuters calculations, recently announced storage expansion projects would require approximately 500 million barrels of crude oil and refined products to fill once completed.

In addition, member countries of the International Energy Agency (IEA) still need to replenish 400 million barrels released through a coordinated drawdown in March. The United States, Japan and other countries are also expected to continue rebuilding strategic petroleum reserves, sustaining demand for crude oil.

Although shipping through the Strait of Hormuz has partially resumed, seasonal summer fuel demand remains strong and global crude inventories continue to decline. Additional oil purchases will be required to reverse the current inventory drawdown.

Reuters estimates that combined demand from inventory replenishment and newly constructed storage facilities could absorb as much as 1 billion barrels of crude oil globally over the coming years. If shipping conditions in the Strait of Hormuz gradually return to normal during the second half of this year, that demand could help global oil consumption stabilize and recover beginning next year.

India Leads Strategic Storage Expansion

India has emerged as one of the first countries to move aggressively on storage expansion.

While not an IEA member, India is the world's third-largest crude oil importer. Its underground strategic petroleum reserve capacity stands at just 5.33 million metric tons, equivalent to roughly 39 million barrels, enough to cover only eight days of national crude consumption.

The limited reserve capacity exposed India's energy vulnerability during the Strait of Hormuz shipping crisis. Reports indicate that the Indian government has instructed state-owned Oil and Natural Gas Corporation (ONGC) to develop a new strategic petroleum reserve facility and fill it with crude oil. The project is expected to cost approximately $1.6 billion.

Pakistan is pursuing a similar strategy, inviting Gulf oil-producing nations to establish crude oil buffer storage facilities within a planned energy city at Gwadar Port.

Further east, Singapore, one of the world's key oil trading and storage hubs, has also unveiled expansion plans. In April, Energy and Science Minister Tan See Leng said the country would explore additional underground space to increase refined fuel storage capacity.

Australia, an IEA member that has long struggled to maintain petroleum reserves equivalent to at least 90 days of domestic consumption, plans to invest A$10 billion ($7 billion) to expand refined fuel inventories and reduce exposure to future supply shortages.

Exporters Also Seek Greater Storage Capacity

The push to expand petroleum storage is not limited to oil-importing countries.

Yasir Al-Rumayyan, chairman of Saudi Aramco, said last week that Saudi Arabia, the world's largest crude oil exporter, is also evaluating plans to expand overseas oil storage facilities.

According to Al-Rumayyan, Saudi Aramco already operates storage infrastructure across global markets, with a particular focus on Asia.