Saudi, Iraq and UAE may fill in Iran gap as US ends sanctions waiver

India’s crude oil imports from Iran during 2018-19 increased by 4.4 per cent to 23.6 million tonnes (mt), compared to 22.6 mt during the previous financial year. This is likely to be replaced in 2019-20 by oil imports from countries like Saudi Arabia, Iraq, and the United Arab Emirates.

With the US ending exemptions on Iran sanctions, an oil-marketing company official indicated the country was unlikely to sign a new term deal with Iran immediately, while it might increase imports from a diversified basket including Saudi Arabia. However, New Delhi on Tuesday indicated India was in constant touch with the US administration, pushing for a relaxation on sanctions.

Another government official said India had a diversified basket of crude oil replacements in place. 

The advantage with Iran was the attractive terms offered by the country including 60-day credit, free insurance, and shipping.

Iran was the largest supplier of crude oil to India after Saudi Arabia and Iraq in 2018-19.

The rise in India’s imports from Iran came despite US President Donald Trump announcing its withdrawal from the nuclear deal on May 8, 2018. Following this in November, when the sanctions came, eight large importers including India and China were given exemption.

“We had extended our term plan for a month by the end of March, waiting for a final decision on US sanctions. None of the Indian companies has placed any orders for May. We are in constant touch with the Washington administration,” said an official close to the development.

India is likely to seek relaxations, as Alice Wells, US principal deputy assistant secretary for South and Central Asian Affairs, and Zalmay Khalilzad, the administration's special envoy, are expected to be in India in the next two weeks. 

Calming the nerves of the Indian consumers on a possible price rise, Petroleum Minister Dharmendra Pradhan said on Tuesday India had adequate alternative supplies in place.

“The government has put in place a robust plan for an adequate supply of crude oil to Indian refineries. There will be additional supplies from other major oil-producing countries; Indian refineries are fully prepared to meet the national demand for petrol, diesel and other petroleum products,” said a statement from the Ministry of Petroleum and Natural Gas.

Though the final import figures for the financial year are not available, the data from the Petroleum Planning and Analysis Cell (PPAC), showed India imported 207.32 mt till February, compared to 220.4 mt in 2017-18. 

The amount is estimated to be about 228.6 MT, by the end of March, pushing up the oil import bill. Based on the February data, the country’s oil import bill increased from $87.8 billion in 2017-18 to $102.9 billion during April-February 2018-19. This is threatening to breach the $112.7 billion in 2014-15. 

According to reports, the share of Iran till February came to $11.42 billion, up 11 per cent compared to the previous financial year.

“We expect global crude prices to remain elevated amid curtailment of supplies led by reduction in Iran’s crude exports due to the US decision to end sanction waivers and partial disruption of Libyan oil production amid escalating unrest. Potential increase in Opec+ crude supplies may mitigate the impact gradually, albeit with significantly curtailed global spare capacity,” said a report by Kotak Institutional Equities.

Public sector companies, especially Indian Oil Corporation, Mangalore Refinery and Petrochemicals, and Bharat Petroleum Corporation continued to procure Iranian oil. Abhishek Dafria, vice-president and co-head, corporate ratings, ICRA, said, “Domestic refineries are making alternative arrangements. While Saudi Arabia and Iraq are likely to be the key markets to fill the gap, the refineries are also looking at crude oil from the US and a few South American countries.”