The business links between Iran and India could well be bigger than the West Asian country’s nuclear arsenal. Experts in India, who have watched that nation closely, say the present crisis that appears to have been precipitated by Tehran’s display of nuclear prowess has more to do with the American and Israeli “rhetoric” than actual tension on the ground. Crude oil import from Iran and even the movement of global crude oil prices are not likely to be impacted much.
No oil industry executive, though, is forthcoming in making an upfront admission because of a payment crisis stoked by financial sanctions. True, there is no state of alarm with respect to Iran, but such is the sensitivity of the subject that a senior oil company executive did not want to be quoted even as he stated that imports would continue. He said, “We have been told by the government to continue buying crude oil from Iran. An alternate payment mechanism has been put in place.” Another industry player, however, conceded that private refiners such as Reliance Industries Ltd and Essar have cut down on their imports from Iran due to the payment issue.
India last year bought about 18 million tonnes of crude oil from Iran out of imports totalling 162 million tonnes. In 2011-12, it is expected to buy 13 mt, though the actual quantities may be lower. The incentive to cut to down on Iranian export, however, is countered by the current situation. Though the popular perception is that any stoppage of supply to Europe from Iran could push up crude oil prices and India’s subsidy bill, industry experts say it could see Iranian crude being redirected to Asia. Global prices have already discounted the Iranian impact.
Talmiz Ahmed, former Indian ambassador to three West Asian countries and erstwhile in-charge of oil diplomacy portfolio in the ministry of petroleum and natural gas, sees India standing by its energy security requirement than being bogged down by any Western pressure. “India has withstood pressure and will continue to do so. The region isn’t currently any tension. Much of the rhetoric is linked to the American presidential election and Israel’s attempt to see that the right wing support does not get diluted.” Besides, nuclear issue by itself is amiable to dialogue, he added.
A spokesman of the Iranian government had ruled out halting of supply to Europe at the moment, but observers say even the emergence of such a situation could benefit Asian buyers of Iranian crude.
“The impact of the EU ban on Iranian crude oil imports is likely to see premiums for similar quality non-Iranian grades rise, hitting European refining costs,” says Platts Energy Economist in its latest edition.
“Non-EU buyers are also likely to face higher premiums for non-Iranian crude providing an incentive to take more Iranian crude.”
The net effect could be simply to re-orientate the distribution of Iranian crude exports from Europe to Asia to the advantage of Asian refiners. An executive from one of the large buyers of Iranian crude in India said China and Korea have cut down Iranian quantities and, therefore, more barrels were available with Iranians. “For the situation to work to the advantage of Indian refiners, it would depend on how the payment system works out,” he said.
According to US Energy Information Administration, China was buying 22 per cent of Iranian imports till June 2011, while India was buying 13 per cent.
The Iranian crude is benchmarked at a slight premium to the Dubai-Oman, which has a weightage of 68 per cent in the Indian basket. So far, the Indian basket has remained at a level lower than the year’s high of $122 a barrel which was reached in April 2011. On Tuesday, the Indian basket closed $118.35 a barrel — about $2 higher than the previous close.
