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Saudi strikes India oil deal after Iran cuts supply

Saudi strikes India oil deal after Iran cuts supply
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First Published: Tue, Jul 26 2011. 01 26 PM IST
Updated: Tue, Jul 26 2011. 01 26 PM IST
New Delhi: Top exporter Saudi Arabia stepped into the vacuum left by regional rival Iran by striking a deal to sell more oil to India after Tehran cut supplies due to a payment dispute.
The 3 million-barrel sale could stoke simmering tension between the two over oil policy. Saudi sources say the kingdom is not actively seeking to wrest share from the Islamic Republic, but with Brent at over $100 a barrel, Riyadh has taken a $300 million slice of Iran’s market in India.
“If Iran can’t get the [payment] issues resolved with India we will send them supplies and we have already alerted them to that,” said a Saudi government advisor.
Iran-led opposition defeated a Saudi proposal for a coordinated supply rise at an OPEC meeting in June. Saudi Arabia said it would boost supply anyway, a move Iran has criticised.
Iran cut sales for August to pressure Indian refiners into settling $5 billion in debts for oil supplied, after New Delhi failed to find a way around US and UN sanctions that make financing deals with Tehran difficult.
At stake is 400,000 barrels per day of oil, equal to 12% of India’s total demand of 3.46 million bpd.
Saudi Arabia approved sales of 3 million barrels for August, sources with direct knowledge of the deal said on Tuesday, covering a quarter of Iran’s daily exports to India.
“By purchasing crude from the Saudis, India is sending out a strong message to Iran that it can diversify away from Iran if the need arises,” Praveen Kumar at FACTS Global Energy said.
Sources at Indian refiners Hindustan Petroleum Corp (HPCL), Bharat Petroleum Corp (BPCL) and Essar Oil said that state oil giant Aramco had confirmed it would supply each of them with an additional 1 million barrels of crude in August.
Indian buyers reached out to Aramco last week to request additional oil to plug the gap from Iran, giving Riyadh an opportunity to grab a bigger share of the market in Asia’s third-largest oil consumer.
“Saudi Aramco has confirmed the supply of additional volumes to Indian refiners,” one of the sources said. “One million barrels each to Bharat Petroleum, Essar and Hindustan Petroleum. It is a mix of Arab light, Arab Heavy and Arab Medium.”
Indian refiners have also sought additional barrels for August from Iraq, Kuwait and the United Arab Emirates.
India has a back-up plan to cope with a halt to crude supplies from Iran, S. Jaipal Reddy, its oil minister said on 21 July. He did not elaborate on the plan.
India and Iran have struggled since December to find ways for New Delhi to pay for imports, after India’s central bank stopped payments through the Asian Clearing Union (ACU) mechanism. There is no ban against buying Iranian crude, but sanctions have made financing trade with Iran tough.
The US and its allies aim to isolate Iran to halt its nuclear programme, which they say is to develop weapons. Iran says it needs nuclear power supplies.
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First Published: Tue, Jul 26 2011. 01 26 PM IST
More Topics: Saudi Arabia | Iran | Oil | Supplies | Crude |