Besides finding a replacement, New Delhi has to contend with the surge in global oil prices
India will not only have to scramble to find replacements for Iranian crude, but will also need to deal with volatility in international crude oil prices that will have direct implications for domestic cooking gas and auto fuel prices.
“India can always source crude from geographies other than Iran, if required. But the worry is the rising prices of crude globally. The tightening of sanctions by the US has already begun pushing up the prices, leading to higher import bills and anxiety in stock markets,” said New Delhi-based energy expert Narendra Taneja.
American President Donald Trump ended the suspense on Monday by declaring that the US will end all Iran-sanction waivers after May 2. The waivers were extended to eight countries for an initial period of 180 days starting November 5, 2018, when Washington imposed sanctions against Iran’s oil and shipping sectors.
Going slow on new deals
With the existing contract with Iran ending in April, public sector refiners such as Indian Oil Corporation and Mangalore Refinery & Petrochemicals were waiting for a clear decision from America so that they could decide on signing fresh deals. India is one of the largest consumers of crude oil and Iran has been one of the key suppliers.
According to a report from Vanda Insights, Iran has been exporting around 1.1 million barrels/day of crude and 200-300,000 barrels a day of condensates to China, India, Japan, South Korea and Turkey under the existing sanction waivers.
Vandana Hari, Founder and CEO of Vanda Insights, said: “It is a double whammy for India. While the country is not overly dependent on Iranian crude, it has been receiving the supply under sweetened deals. Any replacement barrels will not be as discounted.”
“The spike in international crude prices filters through and translates to higher rates at the pump. It also results in more foreign exchange outflow. On the commercial front, Indian refiners that import Iranian crude — IOC and MRPL — will scramble to find replacements,” she said, adding, “They (refiners) will find a way out, as refiners are used to such shocks from force majeures and unanticipated supply outages.”
Sources associated with oil companies agree that the commercial advantage that came with the Iranian crude will be tough to match. “The Iran crude was freight-free. A line of credit was also available for the purchases. Easily, it was about 50-60 cents cheaper,” an official said.
“A bigger question is, what can the Indian government do? At the very least, it could put pressure on Washington and ensure a speedy resolution of the situation. It could also add its voice to that of the US, urging OPEC to ease its supply curbs,” pointed out Hari.
“It would not be wise to bring oil imports from Iran to zero,” said Taneja. “The US is a key strategic partner of India, so we cannot ignore Washington completely. Similarly, Iran is strategically very important for India. New Delhi would hence need to walk the middle path and scale down the size of imports further, but keep importing oil from Iran while going along with the US on other issues, including the alleged Iranian efforts to acquire nuclear weapon capability,” Taneja added.
Source: The Hindu Business LinePrevious Next
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