Refiners still uncertain of which strategy to adopt
Both oil ministries confident either will be flexible
Indian imports of Iranian oil remain above 2017 levels
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India’s traditionally strong relationship with Iran will be severely tested as the South Asian country faces pressure from the US to wean itself off Iranian oil.
As US sanctions on Iran come back into force in November, India finds itself in a tricky position as it tries to keep its supply of oil sources stable without attracting the ire of US President Donald Trump’s administration.
Analysts and Indian industry sources told S&P Global Platts Indian refiners and the oil ministry are still in two minds on which strategy to adopt.
« There is definitely a little more anxiety this time from the Indian side, » said an oil analyst active in India’s oil industry. « India really needs the economical Iranian crude but it seems there is some pressure to toe the US line this time. A final and firm decision still has not been made. »
Both countries are very dependent on each other when it comes to the oil sector.
Iran is India’s third-largest crude supplier after Iraq and Saudi Arabia, while India is the second biggest customer for the OPEC member’s crude exports.
The India’s foreign ministry always said it follows UN sanctions and not unilateral US sanctions.
But there is a growing likelihood that India will have to adopt a different strategy for the latest round of US sanctions, unlike the previous sanctions during the tenure of President Barack Obama when New Delhi continued to import crude from Iran on preferential terms.
So far the signs suggest Indian refiners, both state and private, are under pressure to reduce their reliance on Iranian crude, and their purchases of rival Saudi, Iraqi and US crudes are beginning to edge higher.
Iranian oils like Iranian Heavy crude is also considered to be more economic and price competitive than similar grades from Saudi Arabia and Iraq, trading sources said.
This makes it harder for Indian refiners to completely cut off from Iranian oil, as it faces a market where tightening supply of such grades is pushing up crude differentials.
India’s oil imports in May and June have dipped to 550,000-600,000 b/d from 700,000 b/d in April, according to Platts estimates. But these figures remain slightly higher than India imported in 2017.
Indian oil ministry officials remain confident Iran would display flexibility in bilateral trade even after the US sanctions come into force as Tehran had extended to New Delhi during the previous US sanctions.
« We are trying to evolve a win-win bilateral trade mechanism with Iran against the backdrop of US’s zero trade diktat against Tehran, » said one official.
A clear picture on the issue of trade with the sanctions-hit Iran is expected to emerge after a meeting with US officials next week as regards how much the Trump administration would like India to reduce bilateral trade including oil imports by New Delhi.
Sources have said Nayara Energy, one of the biggest importers of Iranian oil in the country, has started to reduce its purchases. A representative at Nayara Energy which operates the 405,000 b/d refinery in Vadinar was unavailable for comment.
Iran is increasingly finding itself isolated as the US is putting pressure on countries like India, South Korea, Japan and China to significantly cut their Iranian oil imports.
Iran is also under pressure to find a way to keep India as a key buyer.
Tehran’s embassy in New Delhi has said will do its best to ensure security of oil supply to India by offering « flexible measures » to boost bilateral trade.
Earlier this year, Iran offered further freight discounts on oil sales to India after New Delhi agreed to increase volumes this year.
India’s crude oil imports from Iran were expected to increase 31% on the year to 500,000 b/d in fiscal 2018-19, which begins April 1, the ministry said.
In a recent statement, Iran’s embassy in New Delhi acknowledged that « Iran understands the difficulties of India in dealing with (an) unstable energy market » and it « will do its best to ensure security of oil supply to India. »
India’s relationship with Iran has also been sensitive due to a standoff on development of the Farzad B gas field, although both nations are working together to on building infrastructure in the key Iranian port of Chabahar.
India insists it is committed to making Iran’s Chabahar port operational by 2019 to aid trade flows with Afghanistan and Central Asia.
But progress has been slow and Iran wants Indian investment to grow faster.
–Edited by Jeremy Lovell, email@example.com