In a major policy move aimed at strengthening India’s energy security amid the ongoing global crude oil crisis, the Indian government has rationalized royalty rates and revised the royalty framework for crude oil, natural gas, and casing head condensate production. The reforms are expected to encourage fresh investments in the upstream oil and gas sector, particularly in technically challenging and high-investment exploration areas such as deepwater and ultra-deepwater blocks. With these measures, the government aims to accelerate domestic hydrocarbon production, reduce import dependence, and improve long-term energy resilience.
Government Introduces Investor-Friendly Upstream Reforms
The revised royalty structure has been introduced under Section 6A of the Oilfields Regulation and Development (ORD) Act. The government had earlier amended the ORD Act and Petroleum and Natural Gas (PNG) Rules to modernize India’s upstream regulatory framework. According to industry experts, the new royalty schedule removes long-standing inconsistencies across exploration regimes and creates a more stable, transparent, and investor-friendly environment for energy companies. The reforms are also expected to lower operational costs for companies involved in exploration and production activities in difficult geological regions.
Zero Royalty for Initial Seven Years in Deepwater Blocks
Under the revised framework, companies producing crude oil and condensate from Discovered Small Fields (DSF) and Hydrocarbon Exploration and Licensing Policy (HELP) blocks located in deepwater and ultra-deepwater areas will receive major royalty relief.
Key Royalty Changes Include:
*Zero royalty on crude oil and condensate production for the first seven years
*After seven years, royalty rates will increase to:
*Five percent for deepwater blocks
*Two percent for ultra-deepwater blocks
The government has extended similar incentives to natural gas production from these fields.
For natural gas output, royalty rates will also remain at zero during the first seven years before increasing to 5 percent for deepwater projects and 2 percent for ultra-deepwater developments.
Focus on Increasing Domestic Energy Production
India remains heavily dependent on crude oil imports to meet its growing energy demand. Crude petroleum continues to account for the largest share of the country’s overall import bill. During 2025-26, India imported crude oil worth approximately $134.7 billion out of its total import expenditure of $775 billion. Against this backdrop, policymakers are increasingly focusing on boosting domestic oil and gas production to reduce exposure to global supply disruptions and price volatility. Industry observers believe the revised royalty framework could improve project economics for exploration companies and help attract greater private and foreign investment into India’s upstream energy sector.
West Asia Crisis Intensifies Energy Concerns
The latest policy push also comes amid heightened geopolitical tensions in West Asia, which have severely disrupted global energy supply chains. The ongoing Iran-US conflict and the resulting closure of the Strait of Hormuz have sharply reduced tanker movement from Gulf nations, creating significant stress in international crude oil markets. Since the Strait of Hormuz is a critical route for global oil transportation, the disruption has affected fuel supplies, increased shipping and insurance costs, and intensified global energy market volatility. For India, which relies heavily on imported crude oil, the situation has created additional pressure on fuel availability and energy security.
Long-Term Push for Energy Security
The government’s royalty reforms reflect a broader strategy to strengthen India’s domestic energy ecosystem through higher exploration activity, improved production economics, and reduced import dependence. As reported by news18.com, analysts believe that alongside renewable energy expansion and alternative fuel initiatives, increased domestic oil and gas production will remain a critical component of India’s long-term energy security strategy.
