Traders offer sanctioned Iranian crude to India as Chinese purchases peak

India turning into a magnet for sanctioned oil after its refiners started buying Russian oil last year at deep discounts

Suppliers of sanctioned crude oil, led by Iran, are flocking to Indian shores following India’s encouragement of imports of cheap Russian crude last year. This move defies Western pressure and sanctions, allowing Moscow to capture over 40 per cent of India’s oil market.

Traders in West Asia have approached Indian state-run refiners in the past few weeks with offers for sanctioned Iranian grades at deep discounts, as confirmed by refining officials.

The traders offered Malaysian blend crude, a euphemism for Iranian oil. However, Indian refining officials rejected the offers outright, despite the discounts being much higher than the $4-5 per barrel offered for Russian oil, said two Mumbai-based refining officials.

 State-run refiners, including IndianOil, Bharat Petroleum, and Hindustan Petroleum, collectively bought 350,000 barrels per day (bpd) of Iranian crude in 2018, or 67 per cent of India’s pre-sanction purchases from Iran, according to data from the Paris-based market intelligence provider Kpler.

Currently, they account for over 60 per cent of India’s purchases of discounted Russian oil, exceeding 1 million bpd.

Sanctioned Iranian oil is typically supplied to Chinese refiners via Malaysia to conceal the country of origin and evade Western policing, according to the US market intelligence agency Energy Intelligence.

Iran Oil Minister Javad Owji mentioned last week that Tehran may increase output by 300,000 bpd by March next year, up from around 3.3 million bpd now. However, the Chinese appetite for Iranian oil is reaching its limit, necessitating the need for new markets. 

Iranian grades have been a favourite of Indian refiners in the past, whose facilities are geared to produce more diesel. Yet, officials state that India will consider importing Iranian oil only after the international community lifts sanctions.  

They also emphasise that sanctions on Russia and Iran cannot be equated because Russian oil to India will not invite sanctions as long as they adhere to a $60 per barrel free-on-board price cap. Trades above the cap are permitted, provided traders do not utilise Western ships or insurance.

Traditionally, Iran has been a major supplier of crude to India, ranking after Iraq and Saudi Arabia.

In calendar year 2018, the country imported 515,000 bpd of Iranian oil. Purchases between 2016 and 2018 averaged 480,000 bpd, according to data from Kpler. Imports halted after sanctions were reinstated in 2019.

Tehran had offered India a 90-day credit period as compared to a 30-day period from other Gulf suppliers, and additional discounts on transport.
 

Despite the sanctions, Iranian crude exports surged this year to their highest levels since 2018. China’s imports of crude labelled as originating in Malaysia, according to Customs data, averaged 1.12 million bpd in the first 10 months of this year — more than doubling from a year earlier, according to Chinese Customs data.

China’s reported October imports were more than threefold Malaysia’s October output, which has a history of being used as a label to disguise sanctioned crude produced in Iran or Venezuela, as reported by Energy Intelligence.

China imported no Iranian or Venezuelan crude in October, according to Chinese official data. Sanctioned crude is snapped up by so-called ‘teapot’ refiners or Chinese Independents, especially the smaller ones, with discounts as high as $20 per barrel, industry sources said.

Efforts to offer Iranian oil to India also coincide with shrinking discounts on Russian oil and the initiatives by Washington and Brussels to create obstacles for Russian oil shipments. However, New Delhi has toed Washington’s line over Iran. US energy envoy Amos Hochstein warned last week that stringent sanctions enforcement would lower Iran’s estimated oil exports from 1.5 million bpd.