Iran's biggest Indian oil client, Mangalore Refinery and Petrochemicals Ltd (MRPL), plans to cut its annual import deal with Tehran by as much as 44% to 80,000 barrels per day (bpd) in 2012-13, two sources said, as western sanctions make trade more difficult.
The cuts in oil imports from Iran by Mangalore Refinery and Petrochemicals Ltd (MRPL) would imply a reduction of more than 20% in India's total purchases of Iranian oil in the next fiscal year, according to Reuters' estimates.
MRPL plans a hefty cut in imports of Iranian oil in the next fiscal year beginning April, said the sources, who are both familiar with the company's crude import plans.
"There will be a drastic reduction in volumes from Iran," said one of the sources.
That would come as China and Japan, Iran's other leading Asian buyers, make similar reductions in imports from Tehran.
Iran is India's second-biggest oil supplier after Saudi Arabia.
US and European sanctions, aimed at forcing Iran to halt suspected development of nuclear weapons, are hampering Iran's ability to sell its crude oil, which generates most of the country's foreign exchange.
Washington will impose sanctions from June 28 on companies facilitating Iran's oil trade, but many firms are already preparing for the deadline.
Japan is in final talks with Washington on an agreement on cuts in Iranian crude oil imports that could amount to 20% or more a year, a newspaper reported last month, as Tokyo seeks to win waivers from the US sanctions.
LOWER IMPORT VOLUMES
"For the next (fiscal) year, MRPL plans to restrict its term deal to 80,000-100,000 bpd, but imports could rise if the new payment mechanism operates smoothly," said one of the sources, adding talks were taking place with National Iran Oil Co (NIOC) to finalise the deal.
The second source said the refiner plans to commit to a deal for 80,000 bpd and keep an option to buy more.
MRPL agreed a deal to import 142,000 bpd oil in 2011-12, but the state-run firm's actual imports during the year, which ends on March 31, 2012, will be 120,000-122,000 bpd, the sources said, because there have been difficulties in payment.
"As was the case in 2010-11, MRPL was hoping to take 150,000 bpd against a term deal of 7.1 million tonnes, but supplies were hit due to payment problems," said the second sources.
No comment was available from MRPL, and NIOC could not be reached for comment.
The Indian refiner, whose coastal refinery is configured to run Iranian crude, will discuss its annual crude import plan this week, sources said.
Indian companies are currently paying for Iranian oil via a bank in Turkey, after a long-standing Asian clearing mechanism was scrapped under pressure from Washington in December 2010.
India and Iran have agreed that 45% of oil payments should be made in the rupee, which is not freely tradeable.
Using this new mechanism, Iran has started to clear debts with Indian exporters but oil refiners are waiting for clarity on hefty local taxes before making payment for their purchases.
IRAQ DEAL
The Indian government has said it will not implement US and EU sanctions, and has said publicly that it will buy as much as possible from Tehran. But sources have said it has asked refiners to cut imports from Iran by about 15%.
Its mostly state-run refiners are planning cuts of at least 10% in Iranian crude imports, similar to China and Japan, as US measures make it difficult for the top Asian buyers to keep doing business with the Opec producer.
Japan, China and India are Iran's top crude buyers, taking about 45% of its 2.6 million bpd of exports. Iran is the world's fifth-largest oil exporter and the second-biggest producer in Opec after Saudi Arabia.
Refiner HPCL has already said it will cut Iranian imports by about 15% to 60,000 bpd in its annual contract. An HPCL source said the refiner planned to buy 40,000 bpd from Iran on a firm basis and keep 20,000 bpd as optional volumes.
Another state refiner, Bharat Petroleum, is also planning to cut imports from Iran.
Private refiner Essar Oil is sticking to 100,000 bpd.
MRPL has been consistently widening its crude slate as it is expanding its southern India based coastal refinery to process 300,000 bpd.
To make up for its cut in Iran crude supplies, MRPL is planning its first-ever import deal with Iraq among other suppliers, the sources said, although they added the volume from Iraq will be nominal.
Like other Indian refiners, MRPL has also been seeking additional supplies from Saudi Arabia on a monthly basis. It has already doubled its term deal with Saudi Arabia for this year to 42,000 bpd and plans to renew its 20,000 bpd deal with Kuwait for next fiscal year.
MRPL also plans to buy about 40,000 bpd oil from Abu Dhabi National Oil Company (ADNOC).