India likely to resume Iran crude oil imports due to Houthi threat

Houthis are also allies of Iran and not expected to go against trade

India is considering the reinstatement of crude oil shipments from Iran as Houthi insurgents step up attacks on maritime trade in the Red Sea and Gulf of Aden regions off the coast of Yemen, sources in the know said.
 

The issue may have been discussed during recent bilateral meetings between the countries last week when External Affairs Minister S Jaishankar travelled to Iran.
 

Shipments from Iran take place through the Persian Gulf and Gulf of Oman, where the Houthis have a limited presence. The Houthis are also allies of the Iranian regime and are not expected to go against trade deemed important by Tehran, they said.

India has so far not bought crude from any country under global sanctions. The government opened up on importing Venezuelan oil only after the US removed sanctions on the South American nation.
 

“We are always monitoring the situation when it comes to crude flows. However, there have been proposals to resume crude oil imports from Iran. We are studying them,” an official said.

 

Iran was one of the largest sources of crude oil for India until 2018-19. In June 2019, the US administration under Donald Trump placed sanctions on Iran due to its nuclear programme. The US removed an exception for countries like India to source oil from Iran, thereby cutting off India and Iran from accessing US dollars to pay for the trade.
 

As a result, Iran went from becoming the ninth-largest crude oil exporter in 2018 to the 71st as of 2021, Organization of the Petroleum Exporting Countries figures show.
 

Iran is willing
 

“The Iranian side has been keen on resuming oil exports to India. It is badly trying to expand the small set of buyers for its oil. Also, after the impact of the pandemic, the economy is struggling,” a diplomatic source said.
 

In the absence of buyers, an increasing share of Iranian crude has diverted towards China, feeding nearly 10 per cent of China’s crude requirements, Reuters has reported.
 

China bought a record 1.05 million barrels per day in the first 10 months of 2023, according to estimates made by the London-based commodity data analytics provider Vortexa, which tracks ship movements to estimate imports. The exports have, however, hit a hurdle over Tehran now lowering its discounts to $5-6 per barrel below Brent crude prices, down from $10 prices per barrel offered earlier to China, Iranian media reported earlier this month.
 

While Indian refiners are yet to negotiate spot purchases from the country, Iranian crude is increasingly being offered by traders under the garb of Malaysian oil, Business Standard has earlier reported.
 

Reasons to import
 

With the wars in Ukraine and Gaza already keeping tensions elevated and the oil trade volatile, the latest Houthi threat has come as a major headache for the government.
 

The group has so far attacked at least three India-linked ships and nearly a dozen ships with Indian crew. Crude oil freight charges have doubled in the past month, officials from the Ministry of Petroleum and Natural Gas said.
 

“Oil shipments to India are set to be affected in the short term if the spate of attacks increases,” they added. Imports from Saudi Arabia, the United Arab Emirates, Kuwait, and Oman traverse the Gulf to reach the Arabian Sea, and on to West Coast ports.

The US has so far conducted six airstrikes on the group, the latest being on January 19. On Monday, the US Department of Defense said two soldiers are now feared dead after a mission against the Houthis.
 

After more than a year of securing major shipments of Russian crude, India is increasingly looking to re-establish supplies from its traditional partners in West Asia.
 

As of December, Iraq and Saudi Arabia were the second- and third-largest sources of crude for India according to Vortexa.

Meanwhile, discounts received by India have come down to $2-4 in December, down from $9-11 per barrel in November.