Indian refiners to import Iranian crude oil at lower prices

This means means that the buyer, instead of the seller, will have to lift the crude and pay for the cost of shipping the crude to its destination

From next month, Indian refiners would begin importing crude oil from Iran on a free-on-board (FOB) basis against cost, insurance and freight (CIF) basis. “From April 1, all importers will move to FOB as it is cheaper,” said an official with a private refining company.

FOB means the buyer charters a vessel to lift crude oil from a terminal in the producing country and pay for the cost of shipping the crude.  CIF is where the seller incurs the costs and pays freight, including insurance charges.  International sanctions on Iran were lifted in January, giving India unrestricted access to the country’s crude oil.

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An official with Mangalore Refineries and Petrochemicals (MRPL), a subsidiary of Oil and Natural Gas Corporation, said, “We would be importing the Iranian crude based on our month-on-month economics.”

Bharat Petroleum Corporation (BPCL) said the company would begin importing Iranian crude in a few months.

Europe’s protection and indemnity (P&I) club would provide reinsurance up to $580 million, insurance sources said. They added that there were still some issues because the London P&I club was now reluctant to take risks. According to a senior public general insurance official, some reinsurers are apprehensive about providing cover because there’s no blanket lifting of the sanctions on Iran.

OIL IS WELL

• India is Iran’s biggest oil client after China
• Under pressure from US and other western powers, India had cut down purchases from Iran
• Iran offers a 90-day credit period to India compared to a 30-day credit period by others
• MRPL and Essar Oil are the two main buyers of Iranian crude oil, importing around 10 million tonnes a year between them
• India currently imports 260,000 barrels of oil a day from Iran
• After the sanctions, Indian refiners have expanded their crude baskets from regions such as Asia-Pacific and Latin America

P&I is a third-party-liability insurance for shipowners, operators and companies that charter ships. The insurance covers their legal liability in the event of a crew getting injured or dying in an accident. It also covers collision, wreck removal, marine pollution, stowaways, cargo damage and fines levied by foreign governments or port authorities. In such a club, members contribute to the club’s common risk pool.  Indian public sector general insurers, including official reinsurer GIC Re, and shipping companies are planning to set up a P&I club to provide cover to Indian shipping companies.

“Cover for cargo will be provided by the P&I club and that will kick in whenever there is a higher capacity demand. Once all the players begin Iran crude import, this would come into force,” said a senior insurance underwriting executive with a state-owned insurer.

Indian insurers used to depend on European companies to re-insure their risks. However, with the sanctions on trade with Iran from both the US and the European Union, the European firms had refused to re-insure. Large covers like these are only given if the particular insurer or group of insurers have enough reinsurance capacity to deal with the risk.  Indian insurers used to face a lot of difficulty in insuring refineries importing Iranian crude. For this, a Rs 2,000-crore Indian Energy Insurance Pool was proposed to be set up to cover the refineries that were importing crude oil from Iran. However, this failed to take off owing to the differences in opinion between oil companies and the former government on the size of the cover and pool.
 
While oil companies were asking for a cover of Rs 9,500-11,000 crore, the government offered only Rs 2,000 crore. Of the Rs 2,000-crore insurance pool, the petroleum ministry was to contribute around Rs 1,000 crore through the Oil Industry Development Board, and the finance ministry another Rs 1,000 crore. State-owned general insurers had also invited their private sector counterparts to be part of this pool but they all decline, citing high associated risks.